The counter-revolution in economics is almost complete. A flirtation with alternative thinking lasted for the six months between the near collapse of the banking system in late 2008 and the London G20 summit in April 2009. Since then, the forces of economic orthodoxy have regrouped and fought back
This was from an article in the Guardian by Larry Elliott which intelligently argues that higher interest rates can hardly make oil or corn relatively cheaper …
… but there’s something horrible about this Keynes meme. It’s another one of those things in modern society that when viewed objectively, and dissociated from the social intercourse in which it sits, has something of the panicked serenity of the train of thought of someone in the middle of a drug overdose.
What Mr Elliot's thing is about: Keynes’ General Theory was a part of a real intervention in British society in the 30s. Keynes developed some new theoretical concepts which lead him to seek to push monetary expansion as a solution to Britain’s economic problems. He articulated his case for this in the context of the deliberately reactionary economics of his time. The general Theory slyly advocates monetary expansion while attempting to reconcile this view with established neoclassical economics. The overall result is a muddled book that contradicts itself and is predicated on a demonstrably false theory of money.
Keynes’ book was successful because, errors and all, it suited a historical context in which socialism was a real threat, in which the British establishment were willing to make concessions to British workers to defend Britain’s imperial role, and in which authoritarian state capitalism was widely admired by this same establishment. These social conditions are not replicated today. It’s hard to judge whether the stupidity and cynicism of neoclassical economists was worse then or now, but their discourse and institutional arrangements were certainly different.
Bringing Keynesianism back now as an establishment practice is not plausible, because the establishment neither want nor need it. Outside of this establishment, one can only hope for a decent analytical tool. The fact that Keynesianism was part of a somewhat progressive rearrangement of society in the past, leads people into adopting a really poor analytical tool, when there’s no good reason to do this.
Really, now, the banking apparatus is cannibalising the entire economy and only nationalisation of banking can prevent this. This idea can have no purchase on established politics: the politics of the bancocratic establishment, but it’s the only realistic analysis of the situation.
(I wrote some proper notes for this piece, with grand 18th century phrases, but then wrote the whole thing from memory in about 20 minutes. The main thing was the distinction between the general interest and the special interests of the possessers of political power, changing historical cirumstances, and Keynes' unreliability - the history of monetary economics that doesn't mention Proudhon, or his critics, for instance.)