Considering Keynes’s ‘Liberal Socialism’

Was Keynes a champion of a reformed capitalism or a liberal socialist? He consistently argued for a middle way between laissez-faire and state socialism as a means of achieving the good society. But although he referred to a form of socialism in some of his work, his possible variant of such a system creates some confusion in the use of language and argument. A modern social democratic liberalism retains the core features of capitalism and can continue to draw on the ideas of Keynes, even if it does ultimately evolve into something different.

keynesThe conventional wisdom on Keynes has it that the great economist and statesman argued for a reformed capitalism, in order to save the system from its flaws, and guard against political extremism of the left and right. But some of today’s thinkers make a rather different case. They hold that he wanted to see reform lead the way to what he called ‘liberal socialism’.

James Crotty has turned this idea into a whole book, which I wrote about in this post. But Rod O’Donnell makes a similar argument, following the evolution of Keynes’ output during the 1920s, 30s and 40s, in a short chapter from an edited volume from 1999 honouring the work of the late post-Keynesian Geoff Harcourt. The chapter is titled “Keynes’s Socialism: conception, strategy and espousal”. In it, O’Donnell argues that Keynes consistently made the case for a middle way between (and in the process rejecting) laissez-faire capitalism and state socialism. This was his liberal socialism. Politics and economics were to be the means to achieve an ethical goodness in society. This system should combine the best elements of liberalism and socialism, and discard the worst. Continue reading

The long shadow of history: notes on industrialisation under the Russian Tsarist autocracy

The modern development of Russia and the former Soviet Union seems to have deep historical roots. The institutional structure and traditions of the state, which are pivotal to the emergence of capitalism, have in some ways changed little since the days of the Tsarist autocracy. This has shaped the evolution of the country’s political economy down to today.

“History doesn’t repeat itself, but it often rhymes”. Mark Twain’s oft-used quote can be applied to today’s Russian state, which in some ways has retained many distinctive elements despite the long march of an often turbulent history.

In a quest to improve my understanding of today’s war in Ukraine, and perhaps some of its deeper motivations, as well as the modern development of Russia and the USSR, I have dived into a number of volumes which have until recently been gathering dust on my bookshelves. I have found plenty to get stuck into with regard to development, industrial policy and the role of the state.

In this post, I want to share some arguments on the industrialisation of Russia under the Tsarist autocracy, which can be found in Linda Weiss and John Hobson’s 1995 book States and Economic Development. The relevance of this historical episode to subsequent events, even down to today, will become apparent. In sum, I found it to be a fascinating exploration, and one which rang many bells, so to speak! Continue reading

Peter Nolan on the importance of political economy in post-communist transition

Current events in Ukraine are inevitably shifting perspectives on the important and relevant issues in economics, politics, and where the two meet in political economy. I have been doing some reading on the economic history of Russia and the USSR, which has taken me to the issue of post-communist system reform. When already stagnant economies in the Eastern bloc collapsed around 1990, Western economists rushed in to advise on managing and enabling the transition to capitalism. The outcomes were decidedly mixed, and in some cases disastrous for living standards. The legacy of the reforms is surely still with us, and can be contrasted with the experience of China in moving from its own communist economy towards capitalism, which in contrast with the Eastern bloc enacted more gradual reforms, while maintaining political stability. It may now be facing difficulties, but its success in lifting hundreds of millions out of poverty to become an economic superpower within thirty years or so has been remarkable. Continue reading

Reflections on economics and the left

Economics_and_the_LeftI have just finished reading the recently published Economics and the Left: Interviews with Progressive Economists, a fascinating and at times inspiring read. Since my schooldays, I have been drawn to leftist political economics, and have found it difficult to find a huge amount of interest in the mainstream of the subject, so this book was right up my street. It consists of interviews with 24 ‘leading progressive economists’, many of whom have connections with the Political Economy Research Institute at the University of Massachusetts Amherst, one of the few universities with a strong heterodox representation.

As a former student of SOAS in London, where the economics department also has a focus on heterodox economics and political economy alongside its commitment to the study of economic development, I always appreciate ‘alternative’ approaches to economics. There is much more to this than youthful rebellion. Leftist political economy seems to me to be more concerned with the economic and social change that we can see all around us. It differs from the mainstream not only in the theories that it champions but also in the questions that it asks and the issues that it explores. This may be in part why its practitioners have often been marginalised, and have found it hard to break the stranglehold that the mainstream has on the profession. Continue reading

Many Middle Ways – why liberal socialism is an oxymoron

This is the second post in a series on what I have termed the many middle ways of political economic systems. I am mostly concentrating on the mixed economy under capitalism, but today I want to discuss what some authors call liberal socialism, and compare it with social democracy.

For some progressives, it sounds like an unalloyed good: socialism, tasked with ensuring a fairer, more equal and rationally planned society and economy, coupled with liberalism, so that the flaws and horrors of, for example, Soviet Russia, can be avoided. But is it feasible? The crisis of 2008 and its aftermath highlighted the potential instability and inefficiencies inherent in a capitalist economy, while rising inequality of incomes and wealth has brought home to many its lack of fairness and justice. Indeed, the two may well run together, if excessive wealth inequality fuels the unequal distribution of opportunity in society, as well as dampening demand, contributing to sluggish economic growth.

The more recent advent of the pandemic has dramatically forced on many governments a new extended role and activism to attempt to manage or avoid a social and economic catastrophe, with mixed results. So there has been something of a ‘return of the state’, giving rise to some apprehension on the political right, and a desire to make it more permanent on the left. Continue reading

Many Middle Ways – the essence and importance of the mixed economy

img_0372All economies are mixed economies, whether they are capitalist, and even if they are socialist. This understanding makes for a relatively nuanced analysis in political economy. Marx was something of a purist in his own analysis of economic systems. He argued that each system would inevitably evolve to the next, from feudalism to capitalism to socialism to communism, that it would do so from within and that it contained the seeds of each subsequent stage of development. So for example, capitalism might contain some state owned companies, which would show the way towards state socialism, with markets and private property largely abolished. For Marx this evolutionary process, whether it was carried out through reform or revolution, was inevitable. But things have not quite turned out the way he hoped and predicted. Communist states have been transformed into capitalist ones, however imperfectly, and Marxists have continued, ad infinitum, to describe our situation as ‘late capitalism’, implying that it will soon be overturned, perhaps in hope more than anything else. Continue reading

Michael Hudson on socialism

hudson-200x300Another extract in this occasional series from Michael Hudson’s iconoclastic “dictionary” J is for Junk Economics. His economics seems to draw on a vast knowledge of economic history, which often makes for some original ideas and enlightening reading. He appears to be a socialist of the reformist variety and he is right that “socialism” is used as a misleading term of invective by some on the political right. But as Geoffrey Hodgson has reminded me in a number of his books, neoliberalism has become something similar on the left. Using terms in this way becomes emotionally provocative and vastly simplifies debates over their history and meaning. But politics and political persuasion are often as much or more about emotion than a sophisticated analysis of policy. As Hodgson argues in his Liberal Solidarity, most people are not political activists, and perhaps even fewer are professional political or economic analysts. Continue reading

Robert Reich on the real socialism in America

I find former Labour Secretary Robert Reich to be generally good value, and his short videos as informative and often entertaining. Here he is on what he calls the ‘real socialism in America’, in the form of corporate welfare. Tax breaks and subsidies for firms could benefit the wider economy and trickle down to benefit ordinary households in the form of higher wages, if they were tackling market failure and promoting faster innovation and productivity growth as a form of industrial policy, and if these benefits were captured by such households. But it is not clear that this is the case.

Large corporations often lobby lawmakers to gain favourable treatment, and it seems that wealth and income are frequently trickling up rather than down, raising inequality and constraining aggregate demand in the form of consumption by ordinary households.

If investment is constrained by inadequate savings then greater inequality can boost growth. However, if investment is constrained by inadequate consumption, then greater inequality will reduce growth, since richer households tend to save a higher share of their income than poorer households. The latter seems to have been the case in recent decades. There is thus a potential win-win progressive agenda which reduces inequality by increasing wages for ordinary workers and raises the growth rate, while also boosting employment and productivity.

Money and Power: the diversity of capitalisms

MoneyandPowerThis is the third and final post inspired by Vince Cable’s new book Money and Power, following discussions on the making of history and the keys to successful development. Today I take as my point of departure a quote from the concluding chapter to the book (p.345-6):

“It is tempting to look for a big picture and in particular a pattern of success or failure. If there is a big picture, it is probably around the attraction of hybrids. Planned socialist economies have moved towards markets, pragmatically and gradually or in a ‘big bang’. State capitalism has become a distinct and seemingly successful model not just in China but in many emerging economies such as Korea’s. Capitalist economies have tried to blend competitive markets and a strong state with welfare and public goods: the German model from Bismarck to post-Erhard Christian Democracy, Roosevelt’s American liberalism (while it lasted) and Nordic social democracy. Lee’s Singapore is perhaps an extreme example of how a powerful and effective state can coexist with an open market economy, and succeed (though there are some obvious failures like the attempts at reformed communism in Eastern Europe). Despite attempts to shift the balance, as in the Thatcher and Reagan years, such hybrids seem to have proved more durable, politically and economically, than purer models.”

Continue reading

James Crotty on Keynes’ vision for the good society

Crotty Keynes Against CapitalismJames Crotty is an eminent American economist who, according to his biography, has attempted in much of his work to “integrate the complementary analytical strengths of the Marxian and Keynesian traditions.” He could thus be classed as a “left Keynesian” or at least very much in the heterodox economics camp. His most recent book, Keynes Against Capitalism, makes the controversial claim that Keynes himself ultimately made the case for a package of policies which would shift society towards a kind of “Liberal Socialism”. This is contrary to the views of many others who recognized that Keynes wanted to save capitalism from its most disagreeable aspects and outcomes, namely mass unemployment and inequality, while preserving its essential capitalist character. Nevertheless, here is Crotty’s summary, drawing on his interpretation of Keynes, of the case against “free-market” economics and the kind of economy that it legitimises, in favour of institutions and policies which promote the “good society” and greater social justice in particular:

“In standard economic theory, we formally or informally assume we are representing a marketplace in which non co-operating, isolated individuals and firms come together to buy and sell goods and services. The distribution of wealth among agents is exogenous, unexplained within the confines of the theory. Price signals in the market guide the allocation of economic resources and the distribution of income among economic agents. Much of the history of economic thought has been devoted to demonstrating that an idealized model of a free-market economy generates outcomes that optimize a social welfare function.

The vision of society embedded in standard mainstream models of market economies is thus one in which individuals have no connection with one another except through what Marx referred to as a “cash nexus.” Everyone looks out only for themselves, while the market system determines economic and social outcomes. It is reasonable to assume that the “winners” in such an economy – those with the greatest wealth – would have a disproportionate influence on the character of the society in which it was embedded and would be capable of transmitting this power intergenerationally. The economy-society nexus would thus tend to be dominated by the character of the “free-market” capitalist economy. Of course, most governments and other non-market institutions in real world capitalist economies interfere in market activities in many ways, but they generally do not do so in ways that knowingly threaten the economic, political and ideological dominance of the capitalist system. Countries committed to strong forms of social democracy are an exception to the rule…

[T]he assumption set required to generate Pareto-optimal general equilibrium describes an absurdly unrealistic economy that could not possibly exist in the real world. What, then, was the purpose of devoting so much professional economic talent to the creation of such a theory? Keynes believed the answer to this question was largely ideological: orthodox theory supported the domination of capitalism and capitalists over society.

“That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, and the attempt to change such things as likely on the whole to do more harm than good, commended it to authority. That it afforded a measure of justification to the free activities of the individual capitalist, attracted to it the support of the dominant social forces behind authority.”

There is an alternative way to structure the relation between the economy and society: let society dominate the society-economy nexus. Start from assumptions about what kind of society the citizens of a country would like to have, as determined through effective democratic processes, and then ask what kinds of economic institutions and policies would be consistent with and supportive of the reproduction of the values and priorities of the “good society” or of “economic and social justice.”

James Crotty (2019), Keynes Against Capitalism, Routledge, p.366-7.