Terms of Trade: Will the 21st century have a Keynes and Kalecki?

This is the last edition of Terms of Trade for 2024. The year that was has been an extraordinary one from the point of view of political economy, the primary theme of this column. However, rather than dwelling on the individual bygones or trying to connect them together, I intend to make a more provocative argument and hope readers will indulge me.

One of the last TV shows I watched this year is an adaptation of Frederick Forsyth’s The Day of Jackal. It is set-in present-day Europe and America. Written by a left-leaning Labour Party supporting Irish writer Ronan Bennett, the show makes an interesting political point in its choice of the assassin’s target and the clique which commissions the hit-job. The person who is hunted by the Jackal and is eventually killed is a character called Ulle Dag Charles, a new age tech billionaire, who is threatening to launch a new online product, which will unleash complete financial transparency and therefore also expose the concealed wealth of the super-rich. The hit-job is commissioned by a clique of super-rich in the US, who stand to lose much from such revelations and have support from the deep state in the UK.

Ulle’s planned act of fratricide against his fellow capitalists is inspired by his deep belief in aspiring for a just world where the poor can lead decent lives by taking away the ill-gotten and concealed wealth of the super-rich. Note that in tech, you can strike a gold mine by just being super-bright rather than making the worker toil in a factory.

Even as I was watching this series, there came a fit case of truth being stranger than fiction. One of the most riveting stories which came from the US this year was the hiatus between popular sentiment and the rule-of-law after an Ivy League graduate Luigi Mangione killed a top health insurance executive Brian Thompson in New York. Thompson’s killing seems like a pre-meditated act to seek retribution for the company’s – United Healthcare is one of the largest health insurance companies in the US – practices of denying health insurance claims, which are bound to have inflicted significant economic misery on customers at a time of most dire personal crisis.

The US is no stranger to either gun violence or polarised opinions over such crimes. The only difference is Mangione’s was not a racial or an off-the-rails act of violence which is what generally keeps America on the edge. In fact, many sympathised with his infantile and anarchic, in addition to being illegal, act of retribution because they agree with the basic charge: capitalism’ biggest success stories are built on short-changing people. Irrespective of the direction the murder trial takes, the act has left corporate America’s leadership scarred and scared for their physical safety even if business per se need not be worried.

What is the larger point of beginning with these two anecdotes?

Capitalism, if one were to paraphrase Churchill’s quote on democracy, is the worst form of mode of production, except everything else that has been tried. It has generated unparalleled prosperity and innovation in the world and proved far more resilient, nimble and tolerant of individual freedom than its only modern-day competitor, namely, socialism as well as previous forms such as feudalism.

And yet, we continue to live with abject poverty, massive inequality, and now an existential threat to life itself in the form of climate crisis because motivations of private gains continue to resist changes which can solve these problems.

That there are problems with capitalism is not something which is unknown. In the most turbulent phase of its crisis, the inter-war years, the essence of debate among two economists who gave the most authoritative explanations of the crisis was whether capitalism had a chance to reform itself or was it doomed to always under perform on the output and employment front or take reactionary political forms. The former view was championed by John Maynard Keynes, perhaps the most influential economist the world has ever seen, and the latter by a relatively lesser known but by equally bright economist called Michael Kalecki.

Keynes saw the chaos after the World War I and gradually came to the conclusion that the government must take care of under employment by investing on its own in the economy because the Say’s law of supply creating its own demand did not work in real life. The so-called animal spirits could not be trusted to keep the economy going, Keynes argued and saw fiscal intervention as the ultimate silver bullet. His ideas have had a transformative impact on capitalism.

Keynes’s path for reaching this conclusion was driven more by his philosophical take on the political problem facing human kind — he saw this as mastering a combination of three things: economic efficiency, social justice and individual liberty — than some quantitative wizardry, which he could perform it asked to. He was of the view that the incompatibility between the three goals, which is what characterized the inter-war years, was a result of bad economic ideas than the system per-se.

“Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas”, Keynes wrote in the concluding paragraph of his cult classic The General Theory of Employment, Interest and Money.

Kalecki, in a very lucid and yet profound essay published in October 1943 called The Political Aspects of Full Employment argued that any attempt by the state to promote full employment was incompatible with the preserving the hierarchy of capital vis-à-vis labour.

“Indeed, under a regime of permanent full employment, the ‘sack’ would cease to play its role as a disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire; and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But ‘discipline in the factories’ and ‘political stability’ are more appreciated than profits by business leaders”, Kalecki wrote.

“’Full employment capitalism’ will, of course, have to develop new social and political institutions which will reflect the increased power of the working class. If capitalism can adjust itself to full employment, a fundamental reform will have been incorporated in it. If not, it will show itself an outmoded system which must be scrapped”, he adds in his essay, clearly expressing cynicism vis-à-vis Keynes’s inherent optimism in the power of progressive economic ideas to rescue the world from capitalism’s tendency to shoot itself in the foot.

More than 80 years after Kalecki wrote his essay and almost 90 years after the publication of the General Theory in 1935, where is the world vis-à-vis the Keynes-Kalecki debate?

Capitalism has definitely reformed itself enough to prevent a resurrection of 20th century fascism or the world wars which preceded and followed the rise of fascism. Resort to Keynesianism during periods of crisis even after the neoliberal counter revolution have definitely played a role in this. That even the most reactionary politicians do not give damn about being fiscally prudent is the biggest proof of this.

On this front, Kalecki’s more dire warnings have not materialised even though businesses continue to push against policies which would strengthen the bargaining power of the working class vis-à-vis capital.

To be sure, the world is even further from Keynesian optimism than it is from Kaleckian pessimism. “There are changes in other spheres too which we must expect to come…The love of money as a possession – as distinguished from the love of money as a means to the enjoyments and realities of life – will be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease”, Keynes wrote in Economic Prospects for our Grandchildren in 1930. Almost a century later, the time frame he gives for these prospects to materialize in the essay, Keynes has been proved spectacularly wrong.

We can now go back to the anecdotes at the beginning of the column.

In portraying the future of capitalism as a war between a good-hearted capitalist and a clique of greedy capitalists, a left-leaning Bennett is suggesting that the only critical threats to the dominance of capital can come from the ranks of capital itself and governments or even people at large have become largely infructuous vis-à-vis this question. Given the power international finance wields in today’s world, there is merit in Bennett’s subtle cynicism.

Mangione’s nihilist act of violence against a symbol of capitalist greed and the sympathy, which followed it only underscores this point from another direction, which can be summarised as follows. Politics at large is pretty helpless to even regulate capital from exploiting or shortchanging the consumers and even a symbolic resistance must come from acts of anarchic violence.

Also Read: US markets shift: Wall Street returns to T+1 stock trading after a century

Has capitalism really fortified itself against the optimist and pessimist extremes, which Keynes and Kalecki predicted for capitalism’s fate by taking what was absolutely needed and discarding the rest? Does this mean that the status quo, even though it is grossly unfair to on overwhelming share of humankind, cannot be dislodged?

Both the economics of politics of these questions are beyond the scope of journalism. What they need is a persevered engagement from today’s versions of bright and politically motivated minds like Keynes and Kalecki. There is no reason why we would not have equally bright people today as there were a century ago. What is needed perhaps is a political reorientation of their priorities. What made Keynes and Kalecki the legends they became were the historical circumstances in which they became intellectuals. Perhaps today’s elite intellectuals have not had the material basis to feel the same intellectual indignation as Keynes and Kalecki did. Perhaps this will change as US President-elect Donald Trump prepares to potentially pull the carpet from under the existing economic order’s feet in a few days from now.

Roshan Kishore, HT's Data and Political Economy Editor, writes a weekly column on the state of the country's economy and its political fall out, and vice-versa