Bringing back Keynes

By Ust Oldfield

Mark Ferguson recently wrote an admirable article for this blog: In praise of (real) Keynesianism. It is admirable because Keynesianism needs to be brought back into Labour’s debate on the economy. Surpluses are important as a way to save for the future in order to enact the principles from Keynes’ General Theory of Employment, Interest and Money. However, surpluses can be better prescribed to other economic activities, such as Hospital or School building – as an alternative to the policy of PFI – in any economic situation.

The fascination with using state surpluses to drive aggregate demand in a slump stems from a Keynesian illiteracy. This is not to say that people are economically illiterate when it comes to Keynes, it is to say that very few people read beyond his magnum opus – The General Theory.

One can gleam a plethora of economic wealth by reading Keynes’ other works, such as How to Pay for the War. This pamphlet prescribed provision for deferred payment. Deferred payment, during the war, was used to take a portion of income above an arbitrary level and used to pay for the war. The money would then be paid back using a capital levy at the first post-war recession. This had two effects: first, it was disinflationary; second, it enabled British government to stave off bankruptcy.

In a peacetime economy, this policy can be translated into compulsory saving (the name for this policy is largely semantic). This would involve a portion of income above an arbitrary level put into an individual, interest bearing saving account to be released back to that individual at the start of the next recession.

Keynesianism is not the abolishment of ‘boom and bust’ but the abolishment of the ‘bust’. Keynesianism is not about the State directing the economy, which it would through Labour’s common interpretation of Keynesianism, but the State is a means to an end for individuals to direct the economy. Deferred payment, compulsory saving, or whatever one wishes to call it, fits this criteria.

The Labour Party would be wise to read beyond The General Theory.