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Keynesianism

Cooking the Books: Going for Growth

When Mervyn King announced on 8 July that the Bank of England was predicting zero growth for 2012, Chancellor George Osborne pledged that the government would now devote a 110 per cent effort to creating growth. But how?

Growth is defined as an increase in Gross National Product (GNP). This is made up of three things: business investment, government expenditure and consumer spending. So, in theory, growth could be brought about by increasing any of these. In practice, however, it can only come about through an increase in business investment. This is because this is what drives the capitalist economy, but it only takes place in the pursuit of profit. When it contracts or stagnates this is a sign that profitability has fallen. Growth won’t take place again till this is reversed.

Lord Keynes - Economist of Capitalism in Decline

In the sickness of its declining years capitalism is being nursed by the Labour Party. Lord Keynes, who died on April 21st, was the doctor who prescribed the treatment. His theories, on which rest the belief in the possibility of "full employment" under capitalism, have come to the widely accepted not because of intrinsic merit or originality, but because capitalists and the Labour politicians alike have dire need of a panacea that will, they hope, make capitalism work or at least persuade workers that it will. Faced with mounting unemployment and the political discontent that it causes, many Tory and Liberal politicians had lost confidence in their ability to save capitalism. Lord Keynes promised them another lease of life. The Labour Party, new to power, never had much confidence in its own ability, and the "economic blizzard" of 1931 that wrecked the  Labour Government destroyed even what it had; so Keynes was their hope, too.

How Capitalism Works (5): Keynes and Capitalism

AN ENTERPRISE'S RATE OF PROFIT is the ratio of the amount of profits it makes, say in a year, to the money-value of its assets at the beginning of that year. The average rate of profit of the whole economy is the ratio of total profit to total capital. The rate of profit would tend to fall if over time the amount of the total capital tended to increase at a faster rate than the total amount of profits.

This fall tends to happen as a result of the increasing amount of old wealth that must be used as fixed equipment in producing new wealth (or, what amounts to more or less the same thing, to the increasing size of the means of production in relation to the amount of human labour needed to operate them). Because there are so many offsetting factors, this tendency for the average rate of profit to fall only becomes evident in the very long run and so could not explain the onset of a much shorter term occurrence like a slump.

Book Reviews: 'Why Marx Was Right', 'Speak for Britain!', 'The Political Economy of Development'

Marx was righter than this

Why Marx Was Right. By Terry Eagleton (New Haven and London: Yale University Press, 2011) £16.99

Was Marx right? As Terry Eagleton points out in the preface to this book, of course he wasn’t. No thinker gets everything right, nor can any reasonable person expect them to. But was Marx “right enough of the time about enough important issues to make calling oneself a Marxist a reasonable self-description”? In this sense, Eagleton says the answer is yes. And Eagleton is right.

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