There is a reemergence of neoclassical economic theory reactionary to the macroeconomics of the golden age that stems from the nature of the capitalist system. There is an inherent tendency for capitalism to stagnate, curtail social welfare as a necessary expenditure for profit maximization, and depend increasingly on the state as a panacea for the declining marginal efficiency of capital. I shall attempt to show that in mature monopoly capitalism the growing reliance on the state’s short-term ability to soothe stagnation is the final step to save a dying economic system. First I shall explain the state’s neoclassical role preceding the emergence of stagnation in the Great Depression followed by the shift of the state’s dynamics in the mature stages of monopoly capitalism. What was next witnessed after the stagnation of the 1930s was capitalism’s largest prolonged expansion. This ‘golden age’ was increasingly fueled by self-destructive economic policies, such as the much greater role of government spending and deficits, a self-medicating supplement to the decline of investment and investment opportunities.
I shall the discuss the larger picture of Keynesian macroeconomics, where fiscal and monetary policies attempt to iron out the business cycle from capitalism, and nationalization and redistribution of wealth are surrogated by the military industrial complex and growing availability of consumer credit, eventually cumulates to a retroactive crisis that potentially spells the end of capitalism. What we see emerging as a defense to this demise is a final attempt to exploit the system for what little profit is left by enacting neoclassical theory incognito as neo-liberalism. This era following the golden age was characterized by massive rollbacks in social power and capital restrictions. As we shall see, government deficit spending has been realized as an essential vitality to the life of mature capitalism along with the demise, “in short today’s capitalism finds itself on the horns of a dilemma: it can’t live without deficits and it can’t live with them.”6 I shall conclude with an explanation of the dialectics of the government and the economy along with the dialectics of the proletarian and the system that directs and executes their thoughts and labor. Let me begin by looking at the government’s role before and during the Great Depression.
Government’s philosophic and historic role in capitalism has been the enforcer of private property rights, and conceptually under capitalism, only capitalists can own private property. Protecting the rights of the owners of capital has always been the government’s paramount role. Social welfare is the antithesis of capital welfare, and hence, has a tendency to be disadvantaged in a capitalist system. In the younger adolescent stage of market capitalism, competition was primarily local and non-conglomerate. “American capitalism during this stage was characterized by small businesses that employed fewer than 20 people and competed with one another in the widening markets mainly by price cutting. The prices of most goods fell over the later part of the 19th century. Workers, many of whom retained the skills they had acquired in independent commodity production, now found themselves working for a wage under capitalist supervision. The government played a crucial role in enforcing the rules of the game (for example, in enforcing contracts and in breaking strikes), but otherwise it played a minor part in the economy.”2 This stage is usually referred to as competitive capitalism and came to its end at the beginning of the 20th century. The primary role of the government was non-interference apart from the enforcement of capital interests.
Unions at the beginning of the 20th century were virtually nonexistent, and those that had established some grounds in the end of the 19th century were severely broken down and displaced. The neoclassical market theory of laissez-fair and the government’s assertion of private property rights left labor with little to no power in either bargaining for higher wages or demanding basic subsistence welfare. By a huge influx of immigration in late 19th century, the American reserve army of labor had rapidly grown, having only a modicum of power however, this labor was deep under the private sectors dominion and with this concentration of capital power, along with the sway of government assistance, the railroad was undertaken. Due to weakness in the state at this time, the Federal Government auctioned off 250 million square miles of public land to the railroad barons, an action becoming more and more necessary to compensate the weakness in the private sector.
Economic growth requires monolithic private capital investments—a constant industrial revolution. And due to the natural tendency to over accumulate, privatization avails as the growth and investment outlet for overcapacity; capitalism requires more and more privatization. This “shift from publicly to privately-produced goods and services is designed to phase out public programs and to repudiate governmental responsibility for social welfare.”7 What was implicitly or explicitly seen during roaring twenties was little corporate regulation and the freedom for capital to exploit labor at great lengths, a situation that was nominally progressive and prosperous, but actually unstable and cataclysmic. Hence, when the growth of the railroad peter out in 1914, and after World War One’s economic growth, the Roaring Twenties saw productivity soaring to unprecedented levels while wages and prices failed to follow accordingly (a mainstream anomaly). At this time the gap between incomes grew significantly as corporate profits even tripled in the manufacturing sector while the employment stayed relatively idle while even falling in certain sectors. Concentration and more importantly, centralization of capital along with little to no government regulation of speculation and capital power was what Robert Heibroner calls ‘the deepest-seated reason for vulnerability.’
When the stock market crashed in 1929 and stagnation emerged, economic theoreticians began to examine structural deficiencies in the capitalist system. “For the first time the possibility was frankly faced, indeed placed at the very center of the analysis, that breakdowns of the accumulation process, the heart and soul of economic growth, might be built into the system and non-self-correcting. The stage was thus set for a sweeping reconsideration of the whole theory of investment.”6 John Maynard Keynes released The General Theory as part of the reassessment of capital investment and its discontents. His theory was “devoted to showing how and why classical and neoclassical economic alike were wrong in assuming that there are built-in tendencies in capitalist economies to operate at full employment and hence to self-correct any deviations from full employment.”6 Keynes’s theory was a structural analysis, and in assessing capitalism’s tendencies he came to realize the deficiencies of automatic regulatory mechanisms. However, Keynes’s theory was “seen not as a highly original contribution to the understanding of capitalism’s basic modus operandi but as the invention of a set of clever recipes to counteract the ups and downs of the business cycle.”6 This understanding has come to dominate the understanding of Keynesian economic theory, while his original intentions have been disregarded, as they tended to expose the problems in the investment orthodox theory.
The reluctance in economic theory to practice Keynesianism as he intended should come as no surprise, it was in fact largely analytical and incredulous of classical market theory and came off as attacking the conjectures of capitalist paradigms. With the onset of World War Two Keynesian economics was temporarily closeted as ubiquitous investment opportunities mobilized the entire economy and government spending on the war and the following reconstruction/reindustrialization of Europe created massive investment outlets allowing the stagnating economy to be severely offset. Most importantly, the economic growth during World War Two was completely dependent on government’s military industrial expenditures, not capital regaining its youth. Capitalist nature had not proven otherwise to its tendency to stagnate (it could be argued however, that World War is also a tendency in Capitalism, but I’ll leave that aside).
Capitalism, as it stood in the latter years of the depression, was beginning to be exposed for its stringently harsh social tendencies and its fallible endless profit structure. As the declining rate of profit began to illuminate, a world war broke out and government spending on military soared from “$1 billon in 1939 to $79 billion in 1944,”1 mobilizing both capital and labor across the nation. Military spending became the axiom of government expenditures, accounting for ten percent of GDP, and ever soaring. Military spending being the only government spending capitalists allow, bolsters aggregate demand for output of the capital goods sector concentrating money to the rich, increases production without adding to producing capacity, keeps capital goods profits up while suppressing wages, and most importantly, military spending is a way for the government to increase demand and employment without competing with private capital. These expenditures used as a panacea for stagnation is what I shall call the bastard practice of Keynesian nationalization, a quite dangerous practice, as I shall show.
As World War Two came to an end and Europe was reindustrialized, the transformative epochal automobile project took off temporarily moderating government spending on infrastructure while increasing its spending on social welfare with the New Deal. However the economy was still dependent on the integration and diversity of military spending. It was indeed the national defense highway act under Eisenhower that allowed the booming auto industry and the temporary self-re-enforcing growth to expand to the extent it did. Of course the de juray role of these highways were landing strips for military emergencies. What was seen between 1948 and 1963 was the government taking in taxes without having to spend on social welfare due to the supposed strength in the private sector being able to keep unemployment averaging four percent. However, a steady decline in the rate of economic growth proved otherwise. The downward trend in business fixed investment proved that private investment was on the decline; capitalists were not moving their idle wealth. Inequality began to emerge at unprecedented levels and a steady incline in government spending attempted to compensate, “as the investment slowed down, the deficit (adjusted for price increases) kept rising rapidly.”6 However, “the ever-growing deficit was not able to arrest the course of stagnation. And the pressures brought about by stagnation in turn were such that an expanding deficit became more and more essential to forestall a major depression.”6 This is clearly seen in the deficit trends decade by decade throughout the golden age, were in the 1950s there were three years of surpluses and seven years of deficits, in the 60s, two years surpluses and eight years deficits, and in the 1970s there was a constantly run deficit. Government deficits always increase when facing a recession, but stagnation is different than a cyclical downturn and the growing dependence on government spending to supplement the decline in investment outlets and aggregate demand was seen in the growing imbalance in the budget decade by decade. Hence a nominal assessment of the economy would show a declining strength in the private sector.
Why was the private sector degenerating? Primarily the private sector had simply over accumulated due to the increasing accessibility to credit surrogating the redistribution of wealth. As we can see capacity utilization had become contingent on government spending, primarily on the military industrial complex. It was only three times in capitalism’s history that employment and capital came close to reaching their full capacity, and these had been strictly due to the effects of war; it was World War Two, the Korean war, and the Vietnam war that allowed rough maximization of the economy, in other words, war had become the main countercyclical policy of the United States. Government deficit spending temporarily overcomes the threat of stagnation when investment and consumption demand are curtailed by a capital strike, and due to the conceptual reluctance of supply-side theory, credit injections become the only rational way for capitalists to raise society’s demand. Keynes’s solution of taxing those who have a high propensity to save and redistribute the money to those with a high propensity to consume, but are collared by their low wages and destituteness of power relative to capital, makes complete economic sense, but lacks capitalist sense. Capitalist sense however would seem a contradiction in terms, considering economic theory is theory alone, capitalist economic sense is and always has been vulnerable to the unpredictable absurdity of capricious systemic dynamics.
When economic theory thought it finally understood that capitalism naturally grew thanks to the golden age, the achievement was presented to supply-side economics. By witnessing the golden age’s disposition where “recessions were mild, and after every setback investment bounced back at least as vigorously as during any comparable period in the earlier history of capitalism, the old orthodoxy of the unlimited demand for investment, which had been briefly challenged in the 1930s but never overthrown, simply reasserted itself as an unstated axiom of the new economics. The truth is that, apart from claims to be able to control the business cycle, the new economics is fundamentally no different from the old economics. And when the problems of the 1930s—the breakdown of the accumulation process, the onset of stagnation, the soaring of unemployment—began to reappear in the 1970s, the new economists showed themselves to be as helpless as their pre second World War ancestors.”6 One truth can be stated and that is capitalist economics is inherently obstinate supply side economics, which is best illustrated with the resurfacing of neoclassical economics following the golden age. Regardless of the changes and maturation capitalism had undergone in the golden age, economic grave robbers unearthed neoclassical market theory, and much like Frankenstein’s monster, this theory was brought back to life mutatis mutandis, however, it has always been in the nature of this resurrected theory to wreck economic and social havoc.
As the golden age ended with the economic slump of 1974, and as stagnation began to set in, a familiar theory began to reemerge, the theory of neo-liberalism. Neo-liberalism was largely reactionary to macroeconomic theory and the idea that the economy’s well being was determined largely on society’s welfare and ability to consume, distinguish by the fact that investment opportunities had withered and a transformative industrial revolution was not in sight. So what did the U.S economy look to? The government. “As stagnation set in during the 1970’s… a new pattern emerged: deficits not only became a fixed feature of the U.S. economy but kept growing in importance as a stimulating factor in the upward as well as the downward phases of the business cycle.”6 What this implicitly or explicitly shows is a crisis in the private sector. As a crisis with no end in sight, and with demand side economics an improbability, the situation was only exacerbated by the neo-liberal deregulatory, privatizing, and destabilizing orthodoxy. This was initially enacted by Jimmy Carter but most explicitly sanctioned by Reagan and his Reaganomics. “Reagan's fiscal program was fundamentally about tax cuts for the rich, a massive expansion in military spending, sharp reductions in social expenditures, and an acceptance-or better still, an embrace-of large-scale federal government fiscal deficits on these terms.”10 This fallacious orthodoxy of trickle down money injections, government safety netting of corporate embezzlement, and the drowning out of the production sector, under rational analysis shows quite clearly that bastard Keynesian economics amalgamated with neo-liberalism as an attempt to milk a failing economy.
All growth and expansion in our stagnating system is carried by ruthless appropriation of capital that would seem almost aware of its own mortality, and hence every time a new outlet of surplus is unearthed, it will be milked raw until stagnation can naturally resume its position. In other words, widespread capacity utilization rates will rise due to a breakthrough in growth (e.g. the automobile), but due to the ever-diminishing demand, capitalists will attempt at all costs to prolong the return to overcapacity in a frenzy of bad spending. The financial realm has chronically eschewed reality for the reason that this involution allows massive nominal capacity utilization. It was this nominal growth that allowed for a surplus under Clinton while social welfare continued to diminish. It was also under Clinton that government deficits came under great scrutiny as the problem behind stagnation. “The financial community and the academic experts began to focus on the deficit as the alibi for the economic slowdown. Private investment (and hence economic growth) was constrained, it was and still is claimed, because savings were insufficient to finance both the deficit and capital investment. The deficit was supposed to be crowding out the supply of funds that would other wise be used for capacity expansion and new jobs. But this was putting the cart before the horse. It was, in fact, the faltering of capital investment that set the stage for ever larger deficits and other government policies designed to fill the gap in effective demand.”6 Clinton was able to offset the deficit by allowing the financial sector to achieve salient growth regardless of real production and finding new international markets to liberate from the androgyny of autarky. It must be understood foremost that the growth under Clinton was primarily nominal and in reality a quite disastrous ‘growth’ that is still under a rehabilitation of deficit spending.
Of course it was not long after Clinton that the picaresque financial realm undermined itself and deficits once again came to the rescue. And this puts us right about to the current situation of an $8 trillion (and growing) government debt, sluggish economic growth, a trade deficit that hits record highs each quarter, “a $439.3 billion defense base budget—a 7-percent increase over 2006 and a 48-percent increase over 2001,”1 ten-fold increases in monopolized pharmaceuticals, global strife as neo-liberalism wipes its ass across already destitute countries, and larger and larger deficits required to stabilize the effective aggregate demand as neo-liberalism exacerbates the dissolution of capacity utilization and social welfare.
One thing that has yet to be clarified is the incredible trade deficit of the U.S. and this effect on the rest of the world. “Many economies (especially Japan and other Asian economies) have depended on expansion of exports to sustain economic growth and have been running large current account surpluses. Without the U.S. running large and rising current account deficits, the Asian surpluses have to be absorbed by other parts of the world. The subtraction of demand from the rest of the world could lead to devastating outcomes…however, as indispensable as the U.S. current account deficits are, the large and rising deficits lead to increasingly higher net foreign liabilities in relation to the U.S. GDP. Neither the deficits nor the foreign debt can keep rising forever.”5 The growing trade deficit beginning in 1976 is completely unheard of aside from the U.S. So what is the realistic solution to the government drawing with red ink for the last 30 years, and what will pay-back day entail? Robert Pollin’s theory explains that “closing fiscal deficits would entail some combination of two measures: 1) increasing taxes; or 2) cutting government spending. Given the reality of a Bush White House and a Republican-controlled Congress, we can be sure that the solution they would pursue would be spending cuts – and specifically cuts in social spending, not cuts in their priority projects, such as the occupation of Iraq or other imperial ventures.”9 Of course neither of these solutions looks probable nor desired. Raising taxes is out of the question under the neo-liberal agenda, as repercussions would consist of a massive downturn in aggregate demand along with a likely capital strike. It might even seem conceptually unintelligible to think of raising taxes under neo-liberalism not to mention an international armistice.
Pulling out of Iraq? A possibility for some modicum of foot soldiers, but seeing the importance of U.S. hegemony in keeping the value of the dollar up along with the ubiquitous military bases in every country the U.S. has been ever involved in “creating not an empire of colonies buy an empire of bases,”4 this option looks unrealistic. “The United States has used its power to force entry of its capital into nearly every country in the world. It has, in addition, achieved the enviable state of possessing the world’s primary currency—the U.S. dollar. This has allowed the United States to do what no other country can do: it can run persistent deficits in its balance of payments without the repercussions any other country would face.”3 Hence, an Iraqi armistice would undermine U.S. hegemony, as would any other concessionary action today, and threaten the value of the dollar, and considering military expenditures are getting closer to those of the cold war, curtailing them looks unlikely and irrational. So are we stuck with an ever-growing deficit? Likely, but it looks at if we will see a slight decline in deficit spending over the next couple of years, what must be remembered is this of course will come at the expense of social welfare.
Measured against the current economic alternatives, capitalism has come to be understood as the greatest system of growth and power, and it is, however, relative to the wealth and power of capitalism there is a severe deficiency of social welfare. As capitalism reached its mature monopoly stage in the great depression, two major factors offset the consequences of maturation that began to emerge in the 1930s, World War Two and the automobile. These two factors allowed capitalism to undergo the largest period of growth in its history offsetting the stagnation of the great depression. However, this golden age has been under a misguiding analysis. The perspective I have taken puts the golden age as an exception to the nature of capitalism, and among other things, the golden age was planting the seeds of disaster for the future. And it was Keynes, the “disinterested inquirer,” who knew we were all dead in the long run. So it might seem Keynes really did succeed relative to his ideology, he did temporarily offer a cure to the business cycle and stagnation, and however disastrous future remuneration would be, temporary amendment of the great capitalist annoyance was seen. The consequences to temporary amelioration however, did return with a vengeance.
Government spending since World War Two has been exponentially growing relative to what it takes in from taxes (aside from the abnormal surplus under Clinton).
Neo-liberalism as a reaction to the macroeconomics of the golden age has become analogous with Frankenstein’s monster, brought back to life, neoclassical economics with a liberal twist allows once again “restrictions on the property rights of capital… to be swept away”3 and social welfare to suffer the consequences. It was when remuneration/stagnation began to emerge from decades of bastard Keynesian economics that this reemergence of neoclassical economic theory, largely dependent on the idealized/romanticized Adam Smith local, non-conglomerate competitive market economy, cleverly christened neo-liberalism surfaced. At this point in time no outlets or investment opportunities could be found for the monolith of surplus and capital that had been built up, stagnation reemerged and all that follows accordingly, e.g. unemployment, little to no social welfare, no labor power relative to capital power, low wages and incomes, and general idleness in the economy. As the years succeeding the golden age drifted by and private investment steadily declined along with employment and capacity utilization, society came under threat. The “large-scale fiscal deficits create[d] persistent pressure for a permanent contraction in social spending by the federal government. The Nobel Laureate in Economics and right-wing economics guru Milton Friedman could not have been more blunt on this point, explaining in a 2003 Wall Street Journal article that deficits serve as “an effective I would go so far as to say the only effective restraint on the government propensities of the executive branch and the legislature." Remember the Reaganites, as with the Bush group, apparently experienced few qualms about throwing more money to the military while cutting taxes for the already overprivileged.”10 The new economics of free market competition characterized above, and the antipathy towards government is misleading, as it fails to see the true state of the economy.
The current mainstream lexicon of government deregulation being the catalyst of economic growth disregards the de facto role of the government, facilitators and financers of monopoly capitalism. This facilitation is no small endeavor and to believe the role of the government has been curtailed in order to unleash a plethora of anticipated growth previously restrained by lavishing state gridlock is groundwork for further speculation and exacerbation of an already unstable economy. Stagnation is ever present under capitalism and has been trivialized by cyclical upswings in the business cycle and nominal economic growth fueled by credit. Whenever stagnation threatens to reemerge, the panacea of war and military spending reemerges, that is, bastard Keynesianism reemerges. This constant revolutionizing of masking systemic failure has replaced the revolutionizing of capital necessary for true growth. This switch has been predominately facilitated by the financial realm of the government, by laxing monetary policy, fueling failing banks and industry, and bailing out bankrupted business. One very realistic diagram of the trouble the private business sector is facing is the growth of inflation measured by the consumer price index, which remained at a steady rate throughout the 18th and 19th century, even dropping at times, and now grows steadily and sharply. To relate to the opening quote, the current mature economic trends and tendencies show to be undermining themselves, the massive growth in the CPI, the degeneration of the private sector, the decades of red ink in government spending, the emergence of neo-liberal economics, and the massive dissolution of social welfare all persist to an extent unheard of. Are we in the final decay of capitalism, or can democracy prevail, and a completely new structure emerge, a flower in the wasteland? Yes.
A transition will prevail, however, not without difficulty. Humans require self-deception as Nietzsche would say, and the providence of deception is well nurtured by the ruling class, who are also, if not more deceived by their finite system. So how could a socially constituted psychology go about tackling the capitalist abstract individual? The conviction in the verisimilitude of capitalist mentality must be substantially countered by a cogent straightforward presentation of the current state and the prospective alternative state. If the ideas are lucid and organized, as to be understood by the most uneducated, unaware, right wing proletariat, compliance will easily follow. In the past transitional ideas have been clear to the more analytical, well-educated crowd, but this exclusive modus operandi must change. The ideas must comprehendible to a worker with little to no understanding of capitalist economics.
The development of economic socialism must be contingent with political socialism. As David Schweickart explains, “the capitalist class in a capitalist society is a privileged minority class. It is a stable minority class that possesses political power at least equal to that of elected officials and unmatched by any other stable grouping.”11 With the state bureaucrats largely regulated by the capitalist class social welfare has become the thorn in the foot of policy. A social reform is simply unintelligible under the current capitalist system, and as well as the outcome may look to an elected representative to promote, social welfare simply cannot be pursued to an effective length. Social welfare is simply not in the self-interest of anyone, or so is the belief, and it is this belief that curtails our already dearth comprehension of the alternative to “there is no alternative.” Do material conditions exist to make the necessary changes? Maybe not at the moment, but the time would seem ever ripening.
Where would the change take place first, the economy or the government, the mentality or the institutions that shape that mentality? If thought is contingent with labor and labor contingent on thought, and capitalism is deputed by idealism, then the shift from a dehumanizing, disenfranchising system to one more humane and free must come at the expense of temporary force. That is to say, the change in the control of the direction of thought must be institutionalized in lieu of the current capitalist/idealist system of manufacturing irrational consent. How would someone go about changing the direction of thought? Through changing the institutions that are currently working to control the sanction of a dehumanizing, irrational system, the system itself will begin to change, evolve, and develop accordingly. Manufacturing the consent of fear through counterfactual claptrap preached by the apologetics of neo-liberalism results in the comatose of institutional analysis. Creating and spotlighting relatively trivial matters, such as the exhaustion of social security funds, homosexuals, and abortion, the vulnerability of society’s mentality becomes further marginalized from the larger issues. The managers of the state apparatus along with the underlying corporate managers have succeeded in prolonging systemic analysis by revolutionizing the suppression methods of intellectual inquiry. Is it possible that the dynamics of innovation and constant revolutionizing of capital has been shifted to the revolutionizing of the belief of this orthodox? It would seem an acute analysis of the financial realm’s involution and divergence from real production juxtaposed with an analysis of the general ability to understand and follow this matrix of contingencies would reveal a proletarian consensus of confusion and alienation in a world beyond her control. “In the general population there is a sense of powerlessness, that there is just a big political machine out there that we can do nothing about.”8 This growing concessionary pessimism in the left’s mentality is largely fallacious, the lefts disillusionment with a projected reaction to a crisis in capitalism negates, what I believe, the tendency for humans to flourish and desire to flourish. This tendency may be suppressed and displaced by external forces, but the human nature of satisfaction has been pent up for a long time and the alternative to capitalism is quite rational. Show me humans that yearn to flourish, to be satisfied, to direct and execute their thought and labor but cant, and I shall show you capitalism.
