Young People's Socialist League

It all starts with something called "Says Law." Say was a famous French economist from the old days of capitalist economics. In a nutshell, the main thing he said was "Supply creates its own Demand." If this is true, then there can never be under consumption, at least on a macro level. This is the most important idea that the "classic" economists believed, or at least the most relevant one for this argument.

But then along came John Keyens, a snobby British economist who asked; “What if every one saved their money and stopped spending?” Then there would be more supply then there is demand, thus disproving Says law, right?

The classical economists had an answer for that. They said if everyone saved their money, they'd save it in banks, thus giving banks more money to loan out. And if there’s more money to loan out, then the price of loans (the interest rate) will go down. And if the interest rate goes down, this will encourage people, specifically capitalist investors, to take out loans and spend like crazy, thus brining back up demand to the level of supply.

But there is something really stupid about this idea- the classic economists completely forget the whole point of investing: to spend money on something that you hope will get you more money then what you spent on it! And if capitalists don't think they can make any money on investing on anything, particularly when no consumers are spending, they will not take out loans no matter how cheap they are.

So now you have a situation were consumers won’t spend and capitalists won’t spend. What do you call that? A depression. A depression is simply a lack of demand. This situation feeds into itself- as long as consumer’s wont spend, capitalists refuse to spend. And as long as capitalists don’t spend, people don’t get paid. And as long as people don’t get paid, they don’t spend!

But Keynes had a solution: someone had to spend like crazy to get these people paid, even if it meant spending at a loss and loosing money. And what is the only entity in society that can spend at a loss? The government! Keynes' plan was to have the government take out massive loans and spend on anything and everything. As long as SOMEONE was spending, people would get paid and spend more.

To make a long story short, the plan worked. Between the 40's to the 80's, pretty much every western country was a Keynesian state to varying degrees. But as early as the 60's, people started to realize that the Keynesian model of economics was not as solid as they thought.**** ADD WW2 and keynsian economics

First off, we have to acknowledge the accomplishments of Keynesianism. If you look at a map of the GDP of the USA from 1799 to 2007, you will find that it was between the 40's and the 80's that the American economy had the biggest, longest, and strongest economic growth- this is called the Keynesian age. Also, stronger government eventually lead to stronger labor laws, more social programs, and a general spike in average living standards that was just as dramatic as the spike in GDP. Out of all the capitalist paradigms out there, Keynesianism remains the most successful and effective, much to the vexation of the "free-market" fundamentalists out there.

But the problems of Keynesianism started to become too much to handle. For one thing, Keynesianism worked TOO WELL. Whenever GDP goes up, inflation usually goes up too. And when the GDP was going up as fast as it was under the Keynesian model, inflation got out of control. Bankers especially hated this. By the time someone paid back their loans, the loan would be worth less then it was when the bank gave it out. To compensate, interest rates remained really high.

Another problem with Keynesianism is that Keynes said that governments should spend, but never said exactly what they should spend on! For leftists, Keynesianism was a chance to spend on social problems. Leftist Keynesianism thus became known as "Social Democracy," which, as progressive as it once was, should not be confused with socialism. But for the right wing, Keynesianism became a means to solidify the power of the state, the dominate class, and/or the dominant race. Mussolini was probably one of the best Keynsianists out there. He understood Keynes' model better then Churchill or FDR. In fact, he was friends with Keynes. If you look in the Italian translation of Keynes’s most important piece of literature, "General Theory,” you’ll find that it’s dedicated to il' Duce himself!

Fascism is actually just one kind of Keynesianism. The fascist states of Germany and Italy used Keynes’ theories to create huge militaries, which kept up the economy more then private business. We often hear that WWII was what brought us out of the depression, but most people don’t understand why. WWII gave the governments of the west an excuse to spend massive amounts of money that the conservative “Free” market society of the time would not allow them to spend during peace time. In America, for example, the Supreme Court kept deeming FDR’s Keynesian programs on the peace time economy "unconstitutional." But in war time, people are much more willing to go by what the government says. This is why WWII is what really gave Keynesianism the chance it needed. Therefore, to say that WWII brought us out of the depression instead of Keynsianism is just ignorant, because both factors worked hand in hand.

On a side note, I should probably note that war, though theoretically not fundamental to capitalism, has historically benefited capitalism, or at least capitalist states. Want to know what economies Stalin’s first 5 year plans modeled themselves out of? They looked to the western economies, particularly the US, during WWI as the first examples of a command economy. For some weird reason, the big capitalists of the early 20th century did not mind giving up control over their companies to the government in times of war. In a sense, you could say that capitalism actually created the command economy, not socialism.

But what's most troubling about Keynesianism is that it actually does NOT solve the problem of Says Law. Like I said, Keynes wanted the government to take out loans to pay for its spending. This means spending on a deficit (Keynes actually thought "balancing the budget" was a bad idea). If the deficit got to big, consumers would look at it and think to themselves that taxes would be going up soon to pay off the governments loans, and save their money accordingly. Therefore, Keynesianism actually has the potential to CAUSE a depression, or at least make one worse.

The more right wing capitalists have come up with solutions to the first two problems of Keynesianism (inflation and the rise of authoritarianism), but in completely dismissing everything Keynes said they completely forget about the problems of Says Law.

Other then Keynesianism, most modern capitalist theory today falls into two categories; Monetarism, and Supply Side economics. Monetarism says that instead of government spending, a centralized federal banking system should manipulate the interest rate to increase spending if need be and decrease it if inflation got to high. There are many advocates of this style of capitalism, one of the most famous being Milton Friedman. The problem is that these people forget that interest rates don’t matter if capitalists don’t think they can make a profit on what they invest. Therefore, monetarism doesn’t work.

Supply side economics, though, is even more moronic. Supply side economics is basically neo-classical economic theory, and completely disregards everything Keynes said. It focuses its attack on Keynesianism on the problem of inflation under the Keynesian state. The solution, the supply-siders say, is to lower the cost of production as much as possible by lowering taxes and deregulating everything to create an almost completely lassie fair economy. The ultimate goal of supply side is to have GDP go up without causing the usual inflation.

The problem is, this method can only be used once. It’s entirely possible that GDP would go up without inflation if regulations went down, but there’s a limit to how much you can deregulate. Once everything is deregulated, the method of increasing GDP without inflation has been exhausted, leaving the economy defenseless to the problem of savings, or the flaws of Says Law. Mind you, this is the kind of economy people like Ron Paul and the Libertarian Party want us to have- so please don’t vote for them.

Supply side economics is just capitalist fundamentalism, and wants to return us to the economy of the turn of the century, as oppressive as it was and as vulnerable to depression as it was. Believing in the invisible hand more then the visible, material reality, supply-siders chant to themselves (more then anybody else) that the market is the end-all-save-all to every economic problem out there, and even social problems. (Picture a room full of Buddhist monks chanting a mantra to themselves in unison over and over) Not only do they completely ignore the flaws of says law, but also the problem of market externalities, were the market negatively affects people who are neither buyers nor sellers.

So are we vulnerable to depression today? Yes! Definitely! Now, I’m no fortune teller, and I would never try to put a date on such a big prediction, but it’s very likely it’ll hit sometime in our lifetime. There are a whole lot of factors out there right now that are encouraging people not to spend. For one thing, the average debt of Americans is enormous! People are shrugging off their loans, and banks are starting to demand bigger consequences for those who don’t pay them back. The more debt people are in, the less they will spend. It will only make matters worse if banks go after those in debt with pitchforks and a noose.

For another, the debt of the government is even bigger, and will only grow if we continue to go to war with the rest of the world (most of Bush’s “War on Terror is paid for by loans from private banks. It’s Ironic how Bush turned out to be almost as big a Keynesian as FDR). As stated above, the more debt the government is in, the higher the government has to raise taxes to pay it off. If people see the government in a large amount of debt, they will only save their money for a future raise in taxes.

Depressions are not as far fetched as some people might think. Before the “Great Depression” of the 20th century, we had two other ones. The only thing that saved us then, as Keynesianism was not around back then, was the fact that these depressions were caused by agricultural products, and the economy was shifting from an agricultural economy to and industrial one. Depressions also happened after the “Great” Depression; around the 90’s, Argentina recently had a worse depression then we ever did. And the state of African countries, were consumers don’t spend and capitalists don’t spend, can also be called a depression. Japan’s severe recession over the last 10 years, while not necessarily a depression, could also be explained by looking at the gross savings of the country.

So we know now that the Keynesian model doesn’t work, but there are no other capitalist alternatives that do not leave us vulnerable to the crisis of spending and saving. At the same time, I think everyone is agreed that a command economy, which is put up by hardcore capitalist and fundamentalist Marxist-Leninists as the only alternative, is just not viable. So what do we do if another depression hits?

My suggestion would be for more government spending, but targeted on worker-buy outs of firms. Labor managed firms are more likely to spend in a recession because the workers are acting to save their firm, while a capitalist would just leave it and go to another one. Therefore, we should focus our energies on labor management and workplace democracy to secure us from depressions.

I believe that, in a severe economic crisis like a depression, government should give grants, low interest loans, tax exemptions, and subsidies to labor owned and managed firms. First, credit unions should be established that would grant loans to the workers firms. These credit unions would specialize in workers firms, not consumers. They would be run by a democratic structure, much like the Mondragon Cooperative Corporation, were firms elect representative to the credit union to run its management. These credit unions are essential because workers firms work best when they are able to invest with credit, as they can’t sell their stock to get revenue (that would make them a public corporation, not a workers firm).

For those workers who can’t afford to start up their own firm or buy out their old one, the government would nationalize certain firms and industries and hire these unemployed workers, much like the Keynesian model. But unlike the Keynesian model, these state-firms would have marginal control over their own production- marginal control means production is planned by ear, not by some grand master plan for the next 5 years like under the Command Economy. These firms would be run by workers councils, who would vote on production plans democratically, much like the private workers firms.

There are a lot of moral reasons why I think this system would be best, but in this essay I’m only focusing on materialist economics, not ethics. The whole point of this system is to get people to start spending again, and the best way to do that is to make them new owners. Like I said before, workers in a labor-owned firm are more likely to increase production when the economy goes bad because they will loose their jobs if the firm goes down, as opposed to the capitalist who will just move onto another firm or project. On the workers councils, the firm would not technically be owned by the workers (at least in full- it’s possible part of the firm can be owned by workers and part can be owned by the government, like in a corporation). It’s also true that state firms, even ones with marginal production decision making power, can be extremely sluggish and inefficient, mostly because the owners know that if the firm fails the government will step in to save it. But this can actually work to our advantage- remember, during a recession (or depression) a state firm can still spend at a loss.

Are these the only paradigms? No, definitely not. But the point is that only radical democracy, specifically in the workplace, can safeguard us against complete economic disaster. When it all comes down to it, the fundamental flaws of Says law and the quagmire spending and saving come from the fact that, under capitalism, the power to make decisions on production are allocated exclusively according to ownership. This inevitably leads to decisions that benefit only the short-term interests of a few people, such as the decision to save when society needs spenders.

Comments

jcassano on July 28 2007 03:37:37
I really like this article. You should consider submitting it to The Torch.

Thanks for that factoid about Keynes dedicating a book to Mussolini. I'm doing some research now and a section of it hinges on Keynesianism and how it is really a right-wing paradigm that got misconstrued with "socialism" (through social democracy) on account of FDR. I'm also interested in the right wing's transition from classical laissez-faire economics to the big-state (Keynesian) conservatism that we have today.

I'm also glad you made the points about command economies. I remember it taking me a week to explain to my high school economics teacher that the command economy has nothing to do with socialism and was in fact created by capitalism. Japan is a perfect contemporary example of a capitalist command economy.

That was a great point about supply-side economics and how deregulation is a one-time fix. I'd never even thought of that and now it seems painfully obvious.

I'm not sure about the positive ideas you put forward at the end such as nationalization leading to worker-owned industries. After all, that is what most authoritarian socialists (USSR, China, RCP, Shining Path) attempt/will attempt to do. So I guess I disagree with the specific paradigms you propose, but I agree that only radical democracy in the workplace (which is another way of saying a participatory economy combined with a participatory democracy) can be successful.

And I think you forgot to specifically state that capitalists tend to lay off workers at the onset of a recession to maximize short-term profits, which only makes the recession that much worse. Maybe you said it and I missed it...

Anyway, good article. Wish we'd get more of these.

sweetsystemicollapse on July 30 2007 09:24:09
I don't know, I think that nationalization of industry can be positive and not-so-authoritarian. I guess it just depends on how the firm or industry is managed. Venezuela is currently nationalizing industry, Belarus has a lot of nationalized industry, Cuba, Allende's Chile... while they aren't shining examples of a socialist utopia, I think they're doing better than the alternative.

Good article, Agitate

jcassano on July 30 2007 14:08:10
Let's not forget the numerous critiques of Venezuela as authoritarian; Cuba is hardly a shining example of non-authoritarianism; Allende's program was what led to the downfall of the revolution in Chile because he told the people "you're doing too much too fast"; I don't know much about Belarus, sorry.

Regardless, I really do hope you submit this to the Torch.

AGITATE71 on July 31 2007 10:33:53
thanks a lot guys. if anybody can help me with the editing a bit, whether it's with the content or the mechanics, i'd really appreciate it.

as far as the nationalization part goes, i don't mean this to be the dominant part of the plan. Nationalization is only a means to reach the goal of workplace democracy- and on a greater scale, economic democracy- which i believe is the only way to safeguard ourselves from this kind of economic crisis. in my paradigm, since workplace democracy is the ultimate goal, private ownership (like a workers cooperative) and public ownership (like a workers council) are only two different means to reach this goal. therefore, the state-owned firms are not meant to dominate the entire economy.

what i hope is that most of these nationalized or otherwise state owned firms hand over decision-making power over production to the workers, regardless of ownership. for a good example of this, i look to Yugoslavia's workers councils (with less market restrictions on them). personally, i'm also a bit squeamish about handing the government economic control, but as long as the power over production remains in the workplace, and in society (which is NOT synonymous with the government), i'm ok with it.

originally, though, i thought about entirely cutting out all the stuff at the bottom. my ideas on what a socialist economy should look like would probably be best represented in their own essay, and i was afraid that giving them only a few paragraphs at the end, without hijacking the entire topic, would only lead to confusion. they also delve into some unabashed market socialism, which i knew a lot of other socialists out there wouldn't like, so i figured i'd save that stuff for when i can provide a full defense of my opinions.

however, i left them in because something that really frustrates me about today's socialist movement is that we always offer great criticism, but never any constructive alternatives. as i've said before, now that the command economy has proven to be a failure, we've lost a lot of direction as socialists. dont get me wrong, though. i think it's useless to completely plan out what socialism would look like, as we wont know until we get there. history is never kind to people who think they can predict the future. however, i think that some common paradigm as an ultimate goal, even if its controversial, would give the movement, and the PS and YPSL in particular, a lot of strength.

people are attracted to political movements that can clearly define what their goal is. today's socialists can not. this is something we need to fix immediately.

jcassano on July 31 2007 15:28:21
I definitely agree with the spirit in which you made the positive suggestions for socialist paradigms. Like I said, I happen to disagree. But that doesn't mean that I'd scrap the article or even the bottom section. I think the article would be incomplete without the bottom section. Like you said, we need to offer our own alternatives, not just criticism.

Once we get the Torch Collective (editorial board) off the ground again, that should provide you with some people willing to help edit the article and such (I don't think it needs that much, actually). And until then, there's always the Torch editor, Joey, to do things like...heh...editing. Feel free to email me if you need anything.

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