Listen Keynesians, It’s the System! Response to Palley

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Jo hn Bellamy Foster and Robert W. McChesney more on Economics , Global Econo mic Crisis

Listen Keynesians, Its the System! Response to Palley ::

Monthly Review

John Bellamy Foster (jf os ter [at ] monthlyreview.org) is editor o fMonthly Review, prof essor of sociology atthe University o f Oregon, and author (with FredMagdof f ) ofThe Great Financial Crisis (Monthly Review

Press, 2009). Robert W. McChesney (rwmcches [at] uiuc.edu) is Gutgsell Endowed Prof essor of

Communications at the University of Illinois at Urbana-Champaign, and author of The Political Economy of

Media (Monthly Review Press, 2008) and (with John Nichols) The Death and Life of American

Journalism (2010).

Thomas I. Palley sent John Bellamy Fosterthis art icle in October 2009 for publication in Monthly Review,

accompanied by the f ollowing note: Im hoping it might provoke some discussion and also generate some

dialogue and consensus between Marxist s (like yourself ) and st ructural Keynesians (like myself ). Palleys

piece addressed (along with much else) the article Monopoly-Finance Capital and the Paradox ofAccumulation by John Bellamy Fost er and Robert W. McChesney in the October 2009 issue of Monthly

Review. In the same spirit o f promoting dialogue between Marxists and Keynesians o n the present crisis,

we agreed to publish his cont ribution, together with the f ollowing response by Foster and McChesney, in

this issue ofMR.

The Editors

The Problem

In an art icle entitled Listen, Keynesians!, published in January 1983 in Monthly Review,Harry Magdof f and

Paul Sweezy argued that t he radical break that John Maynard Keyness General Theory of Employment,Interest and Money(1936) represented for o rthodox economics lay in the f act that For the f irst t ime the

possibility was f rankly faced, indeed placed at the very center o f the analysis, that breakdowns o f the

accumulation process , the heart and soul ofeconomic growth, might be built into t he system and non-self

correcting.1

Sweezy made Listen, Keynesians! the basis f or his cont ribution to the Keynes centennial meeting of

economists at Hof st ra University later that same year (a meeting that also included such luminaries as

James Tobin, John Kenneth Galbraith, Dudley Dillard, and John Eatwell).2 For Sweezy, the early 1980s were

a time of renewed economic stagnation, the rise o f supply-side economics (the very antithesis o f Keyness

views), and the emergence of new contradictions, such as f inancializat ion. It was therefo re high time that

the remaining Keynesians returned to the central problem raised by Keynes himself , of an underlying

contradiction in the capital-accumulation process , leading to a st rong s tagnation t endency.3

Sweezy was a Marxist economist, but one who had also been inf luenced by the Keynesian revolution at its

inception, embracing so me of the more radical conclusions of Keyness economics, which he believed f it

well within a Marxian polit ical and ideological framework.4 It was possible, he argued, to be both a socialist

and an orthodox Keynesianas in the case o f Joan Robinson, Keyness younger colleague at Cambridge

University and one of the f oremost economists of her day, who f requently wrote forMonthly Review. As

Joseph Schumpeter said of Keyness early followers, most ort hodox Keynesians are radicals in one

sense o r anotheralthough the same could not be claimed, he added, for Keynes himself .5
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In Britain and the United States, the Keynesians are f ar better trained and equipped technicallythan

Marxist economists, Sweezy wrote in 1946, and as matters stand now there is no doubt at all about which

group can learn more f rom the o ther. While extolling the virtues o f ort hodox Keynesianism, Sweezy was

clear on its f ailings. Keynes completely ignores the problems of monopoly and ignores technological

change. Mos t f atally, Keynes internalized the major unspo ken premisethat capitalism is the only

possible form of civilized so ciety.6

Sweezy and Monthly Reviews criticism of Keynesian economics increased in the postwar generation, as

what Robinson termed bastard Keynsianism became the o rder of the day f or mainstream economics andpolicymakers f rom Harry Truman to Richard Nixon.7 This sanitized version o f Keynsianism dropped much

of the concern with inequality and social spending, and regarded Keynes as providing a to olkit o f

government po licies to manipulate the short - term business cycle and thereby avoid recession and inf lation.

In the United States , this meant, in pract ice, military Keynesianism. Bastard Keynesians proclaimed that ,

with smart government policies, the system would work beautif ully. The stagf lation of the 1970s

demolished this belief and left establishment Keynesianism largely discredited. In mainstream discourse, it

increasingly was f ramed as the cause o f capitalisms growth problems, not the cure.

Listen, Keynesians! by Magdof f and Sweezy const ituted a call f or those Keynesians who might st ill be

true to Keyness o wn way of thinking, to return to his central point t hat the capital accumulation or savings-

and-investment process at the heart of the capitalist economy was f lawed. Moreover, it was necessary,

they argued, ultimately to go beyond Keynes himself to recognize that todays mature, stagnating economy,

increasingly supported by the growth of debt- leveraged speculation, was a system beyond repair.

In November 1982, only two months bef ore t he publication of Listen, Keynesians!, Magdof f and Sweezy

had pointed out in Financial Instability: Where Will it All End? that the question as to whether a major

f inancial crisis (on the scale of 1929) could propel the economy into a deep downturn, approaching the

scale of the Great Depress ion of the 1930s, was s till an open one. They were responding here to Hyman

Minsky, a proud Keynesian (albeit with socialist leanings), whose views, they claimed, were especially

worthy of attention precisely because over the years he has been the American economist who has done

more than any other to f ocus o n the crucially important destabilizing role of the f inancial system inadvanced capitalist count ries. Magdof f and Sweezy agreed that Minskys argument in his 1982 Challenge

art icle Can It Happen Again? in which he suggested t hat it was now unlikely that a f inancial crisis would

lead to a deep depress ion as in the 1930s (due to the Federal Reserve Boards lender of last resort

f unction and high government def icits ) was a powerf ul one. Yet they contended that Minsky tended to

treat the domest ic U.S. economyin abst raction f rom the vast and vast ly complicated international

economy [and international f inancial realm] of which in fact it f orms a t ightly integrated part. The exclusive

f ocus o n U.S. conditions in Minskys argument f ailed to take into account the nature of the world interbank

market. Hence, it f ailed to consider the f act that f inancial weaknesses emerging in any particular nation or

region could have a contagious ef f ect, quickly spreading to the entire global system. This posed the

possibility that the Federal Reserve (or the central banks o f the leading capitalist countries working intandem) would be unable to act with the speed and on the scale necessary. For this reason, Magdof f and

Sweezy contended, the possibility of the capitalist economy succumbing to a serious debt-def lation

depression was still one to be taken seriously.

Should we assume that the growing f inancial weakness o f the economy will culminate, as it has so many

times in the past , in a panic followed by a debt-def lation depression o f the kind that overwhelmed world

capitalism in the early 1930s? Or have the inst itutional changes of the post -Second World War period

immunized the system against the recurrence of such a catastrophe?

History alone, of course, will provide def inite answers to t hese questions. But in the meantime it is possible

to advance a plausible case f or either the optimistic or the pessimist ic view. The argument f rom past

experience, never to be lightly dismissed, certainly points to the likelihood, even if not the certainty, of a

crash so severe as to defy ef f orts at control during a painf ul and possibly protracted def lationary process.

We ourselves have always leaned to t he view that this is the most probable outcome of the kind of deeply

ingrained f inancial weakening of the economy we are now witness ing.8
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Still, such warnings f ell on deaf ears. Those economists st ill generally working in Keyness own tradition,

like Tobin, Galbraith, and Minskywho understoo d that capitalism did not naturally tend toward f ull

employmentremained committed to the idea that an active state could stabilize the syst em, removing its

worst irrationalities. The great majority of economists , however, had abandoned Keynes alto gether along

with the need for af f irmative government and had returned under one mantle or another, to t he pre-

Keynesian belief in the auto matically equilibrating capitalist market economy. Keynes was relegated to a

special case (as Schumpeter had declared) related to periods, now viewed as impossible, of deep

depression.9 The quest ion Can It Happen Again? which Minsky asked, and Magdof f and Sweezy gave aqualif ied Yes to, was generally dismissed as no longer even worth raising.

Today, more than a quarter o f a century later, the failures of the capitalist economy and capitalist

economics raised by Magdof f and Sweezy in Listen, Keynesians! are st ill with us. The f reefall of the

economy associated with the Great Recess ion has revealed the impoverishment o f mainst ream economics,

which not only was unable to f oresee such a crisis, but also relied on models that excluded it as a

possibility, along with economic stagnation in general.

An example of how f ar economics had descended by the end o f the twentieth century and t he beginning o f

the twenty- f irst was that Paul Krugman, widely regarded as a leading Keynesian, declared in the late 1990s,

in a polemical attack on what he called Vulgar Keynesians, that if you want a s imple model f or predicting

the unemployment rate in the United States over the next f ew years, here it is: It will be what Greenspan

wants it to be, plus o r minus a random error ref lecting the fact that he is not quite God.The obvious (to

me) point that the average unemployment rate over the next ten years will be what the Fed wants it t o be

never made it into the public consciousness.10 Yet the decade (1998-2007) that Krugman so conf idently

f orecast , in disdain of vulgar Keynesians, as what the Fed wants it t o be, was to be one of stagnant

growth and a double-bubble economy (bolstered also by unending wars in Af ghanistan and Iraq),

culminating in the Great Financial Crisis and the Great Recession!

In his ill-timed 2007 intro duction to a new edition of Keyness General Theory, Krugman was t o insist that

Keynes was wrong about the direction of the modern economy, mistaking an episode for a trend, sincelack of ef f ective demand, ultra- low interest rates, a declining marginal ef f iciency of capital under conditions

of indust rial maturity, and a f inancial crisis involving a serious debt-def lation depression had not been

experienced (except in Japan) in the post-Great Depression era up until thenand were nowhere in sight

(or even conceivable) in the U.S. or European context . Keynes, according to Krugman, had been right in his

day that the world economy was in severe trouble. But economists had learned that all it to ok to get the

economy going again was a surprisingly narrow, technical f ix, and hence monumental crises or depressions

in the advanced economies were a thing of the past .11

The Return of Marx and Keynes

This intellectual def ault of orthodox economics meant that t hose seeking answers in the face of theeconomic f reefall of the last f ew years were f orced to reach out beyond the increasingly narrow conf ines

of economic ort hodoxyto Keynes himself , and beyond him, to Minskys heterodox theory of f inancial

instability. Many dubbed the f inancial crash o f 2008 a Minsky Moment.12 Moreover, at the same time as

some turned back to Keynes, ot hers turned to Marx and his more f undamental critique of capitalism. And,

ust as Keynes and Marx are now sometimes conjoined in the minds o f those t rying to understand the

current economic mess, so increasingly are the heterodox theories of Minsky and Magdof f and Sweezy

uxtaposed, representing the Keynesian and Marxian sides of the at tempt to understand the f inancial

contradictions of capitalism.13
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It is this which, in our opinion, makes Thomas Palleys art icle, The Limits of Minskys Financial Instability

Hypothesis as an Explanation of the Crisis, and his interest in opening up a dialogue on these matters

with Monthly Review, so interesting and important.14 Palley is a genuine Keynesian econo mist (i.e.,

operating within the tradition o f Keynes himself ), attempting to extend Minskys theory of f inancial

instability in order to account f or t he current economic malaise. For Palley, like Keynes and Minsky, the

capital-accumulation process is f lawed, but is no t beyond repair. Rather the state, he argues, should

intervene and institute a true Keynesian approacha pos ition he ref ers to as s tructural Keynesianism.

The causes of f inancial instability and stagnation can therefore be t raced, in Palleys view, not so much to

capitalism itself , as to the unfort unate anti-Keynesian nature of neoliberal economic policy.

Our own perspective is dif f erent. The root problem, as we see it, is not neoliberalism but capitalism itself.

Neoliberalism (the economics o f Hayek, Friedman, etc.) did not emerge as a dark conspiracy to drag

capitalism from high growth rates and vibrancy; it became the orthodoxy when the system was in tatt ers in

the 1970s, and when (bastard) Keynesianism was the establishment doctrine in disrepute. The choice

before nations in that decade of crisis was to turn sharply to the lef t and go beyond exist ing monopoly

capitalism to some variant of socialism, or turn hard right.

What room there might have been at one timeand even then inscribed within the larger domination of

center-over-periphery in the world economyfor a genuine Keynesianism, asso ciated with social

democracy of the Scandinavian variety is, in our view, now gone. The deepening st agnation of the mature,

monopolistic economy, and the growth o f f inancialization in an attempt to leverage up the system,

represent the f ailure of the capital accumulation process at the systems rot ting center. The capitalist

system as a whole is approaching its histo ric limits and needs to be transcended if the real needs o f

humanity (and the earth) are to be addressed.

In order to understand how and why these divergences in perspective between ourselves and Palley arise, it

is usef ul to look f irst at t he dif f erences in outlook represented by Minsky and Magdof f and Sweezy in

relation to f inancialization and stagnation, and then at the more f undamental dif f erences with respect to

capitalism as a mode of production that separate the worlds of Keynes and Marx. These issues are not

conf ined to the abst ruse realms of theory, but have immense practical implications.

Minsky and Magdof f -Sweezy

Palley sees the work of Minsky as the key to unlocking the puzz le of the greatest f inancial and economic

crisis s ince the Great Depression. Minskys f inancial instability hypothesis argued that t he f inancial

st ructure of the advanced capitalist economy has a f undamental f law, present in every business cycle,

driving it inexorably f rom robustness to f ragility, leading to periodic f inancial crises or credit crunches. Two

things, Minsky argued, prevented capitalism f rom generating a major debt def lation, as in the Great

Depress ion: (1) the role of the Federal Reserve Board (along with the central banks o f the o ther leading

capitalist countries) as lenders o f last resort ; and (2) big government def icits , inevitably rising in a crisis

due to short f alls in revenue, that tend to bolster the economy and the f inancial system. Nevertheless,

continuing f inancial instability was such that it periodically required active state intervention to stabilize an

unstable economy.15 It is such periods o f f inancial crisis and needed government intervention that have

recently been dubbed Minsky moments.
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One diff iculty o f Minskys analysis is that, while it excelled all others in depicting the cyclical nature of

f inancial crises, it was much less clear as to how this related, if at all, to the long-term economic trend.

Minsky, although obviously aware that f inancial volatility was becoming more and more a reality, did not

examine the long- term growth of f inanceactual empirical st udies were rare in his workand hence he did

not develop what could be called a theory of the f inancialization o f the economy, i.e., the shif t in the

center of gravity of the economy fro m production to f inance. Nor did he deal with the question o f

stagnation, i.e., the slowing down of the capitalist economy at the center of the system, which f or Magdof f

and Sweezy constituted the explanation f or t he shif t to f inance. Following the 1987 stock market crash,

Minsky did suggest that once again capitalism has changed, evolving into a new phase of money

manager capitalism more prone to f inancial crises. This was, however, never developed into a coherent

analysis.16

This lack of a theory of f inancializat ion as a long-run trend, along with Minskys repeated contention that a

debt def lation resembling the 1930s would mos tly likely notoccur again (due to big government and the

lender of last resort mechanism), have been the main stumbling blocks f or t hose seeking to apply his model

to the Great Financial Crash and Great Recess ion of the last f ew years. At the same time, the f act that

Minskys f inancial instability hypothesis was seen almos t entirely as a short- term, cyclical phenomenon,

present ing the problem of a Minsky moment and not as a developing trend, has likely served to make his

analysis more acceptable to establishment theoristswho are concerned above all with demonstrat ing thatthe economy will soon rebound with a little push f rom the state.

Palley seeks to overcome this absence of a developed economic-trend analysis in Minsky by pointing to

what he calls a super-Minsky cycle that operates f or perhaps decades. The super-Minsky cycle, according

to Palley, has to do with the long-run breakdown of the institutional structure of f inancial regulation, which

is part o f the f inancialization process . Bank regulations and regulations on f inancial inst itutions in general

are more and more relaxed, the further the economy gets f orm the last major crisis. This, then, generates a

progress ively weaker f inancial architecture, increasing the amplitude of f inancial risk in each successive

basic cycle. This leads eventually to a point in which the lender of last resort f unction of the central bank

can no longer manage the situation, resulting in a debt def lation. The only answer, then, is to reestablish

f inancial regulations as part of a general Keynesian ref lation of the economy.17

We have f ound no evidence of what Palley calls a super-Minsky cycle in Minskys work itself . Indeed, the

very empirical reality of such a cycle is in doubt, since the long- term increase in f inancial prof its that we

have seen in recent decades is unprecedented in the history o f capitalism.18 The 1991 article by Piero Ferri

and Minsky that Palley cites in this respect makes no mention o f such a super-cycle, and is, in f act, aimed

at explaining why endogenously generated f inancial crises do not normally lead to explos ive conclusions,

due to homeostat ic mechanisms ref erred to as thwarting systems.19

In an analysis that thus goes logically beyond what Minsky himself argued, Palley claims that, in recent

years, the Minsky super-cycle gradually eroded the thwarting institutions that protected the system,thereby allowing fo r the development o f the hous ing bubble (including the excesses o f subprime mortgage

lending, collateral debt obligations, credit default swaps, etc.) as well as its eventual collapse.

Nevertheless, it is important t o recognize, in response to t his super-cycle argument, that t he continuous

and steady rise in the share of f inancial prof its since the late 1970s is unprecedented in the United States

or elsewhere. And a cycle with o nly one phase is not a cycle.
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Having converted Minsky somewhat dubious ly into a theorist of a f inancial long wave, Palley nonetheless

claims that Minskys analysis f ocuses exclusively on f inancial markets, lacking a well-worked-out relation

between production (the real economy) and f inance. Palley attempts to f ill this gap with a st ructural

Keynesian argument, f ocusing on how neoliberal capitalism altered the relation between production and

f inance, through a class-based redistribution of income and wealth, benef itt ing those at the top (involving

both wage stagnation and hyper prof its), a related shortage of ef f ective demand, and the f ueling of the

neoliberal economy by debt buildup and asset inf lation. Coupled with the super-Minsky cycle in which

thwarting mechanisms to f inancial speculation are removed, this led, accordingly to Palley, to the disastro us

crash of 2008. In this view, neoliberalism appears t o be the primary cause o f both f inancialization and

stagnation. With f inance in crisis, s tagnation, he claims, is the logical next s tep o f the neoliberal model

given current conditions. Indeed, f inancialization explains why the neoliberal growth model was able to

avoid stagnation f or so long.20

For Palley, the answer to all of this is quite clear: reverse neoliberalism and restore the link between wages

and productivity growth. His general approach in this regard can be seen as the main focus of

progress ive-oriented economists . It is a view that also has great inf luence among progressives in general.

Magdof f and Sweezys analysis o f f inancial instability, in cont rast to that of Minsky, was never concerned

primarily with business cycle f luctuations (although they followed these closely), but rather with the long-

run process o f an expanding financial superstructure, as they called it, on to p of a stagnating productive

basea process described by Sweezy as the f inancializat ion o f the capital accumulation process .21

Although they discussed f inancial crises as they emerged, and t he tendency to remove f inancial regulat ions

and to allow greater riskalong with the development of more exot ic financial products to meet the

unending demand for these products coming f rom capital st uck in a condition o f overaccumulationthe

real point o f their argument was directed elsewhere: at how f inancial expansion promoted economic growth,

without o vercoming the underlying stagnation problems o f the system.22

The contradictions displayed by todays economy in this perspective thus go f ar beyond neoliberal

economic policy or a super- Minsky cycle. As explained numerous t imes in Monthly Review, the underlying

problem of accumulation in the advanced economies today is one of a deep-seated stagnation tendencyarising f rom a high degree of monopoly (o ligopo ly) and industrial maturity. More actual and potent ial

economic surplus is generated than can be easily or prof itably absorbed by consumption and investment,

pulling the economy down into a s low growth s tate. As a result, accumulation becomes increasingly

dependent on special stimulative f actors . Histo rically, over the entire post- Second World War period, the

most persist ent of these have been military spending, the sales ef f ort , and the growth of debt- leveraged

speculation (i.e., f inancializat ion)and increasingly it is this last that has carried mos t of the weight. As the

economy has slowed down, decade by decade, since the 1960s, the f inancializat ion o f the economy has

grown by leaps and bounds, t ending to lift an accumulation process weighted down by overcapacity, but at

the cost of worsening f inancial crises.

Stagnation has nonetheless cont inually reasserted itself ; mos t recently in the Great Recession f ollowing

the f inancial bust . Since the only feasible means of restarting the accumulation process at this point is

renewed f inancializat ion, the state at present is actively pursuing this s trategy (supported by a capitalist

class more and more geared to asset appreciation through speculation)even aft er the worst f inancial-

economic crisis since the 1930s. Thus, the s tage is set f or bigger f inancial bubbles that will burst in the

end, pulling the economy back down again. This can be described as the stagnation-f inancialization t rap.23
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Our own argument, which was derived f rom that o f Magdof f and Sweezy (and Marx), suggests that the

f ault lies in capitalism itself , and not in neoliberalism, which merely stands f or economic policy mos t

conducive to todays monopoly-f inance capital (or the era of f inancialized monopoly capital). The

f inancialization of the capital accumulation process was a response to a deep tendency to economic

stagnation rooted in the development o f the monopoly stage of capitalism. Capital, faced with a short f all

of prof itable investment o pportunities, sought ref uge increasingly in f inancial speculation made possible

(as Minsky repeatedly noted) by the era o f big government and big banks. Consequently, if stagnation was

the chief contradiction of monopoly capital proper, this has now evolved into t he twof old contradiction of

stagnation-f inancializat ion under the phase o f monopoly-f inance capital. No change in economic policy is

possible under the system at this point. In this view, neoliberalism would appear to be here with us more or

less permanently, as long as the stagnation problem lasts , since it is itself a ref lection of the stagnation-

f inancialization t rap that characterizes the age of monopoly-f inance capital. There is no super-Minsky

cycle that leads to a super-Minsky recovery; no meaningful structural Keynesian response to the crisis;

no t urning back the clock to a lost Keynesian golden age. The fault is in the system.

Marx versus Keynes

Marxian economic theory has, o f course, sometimes been asso ciated with a breakdown theory

perspectivealthough we would argue that t his has never been the main thrust of the Marxian approach.

Keynes too has sometimes been seen as po inting to economic breakdown. As Schumpeter put it,

With Marx, capitalist evolution issues into breakdown. With J.S. Mill, it issues into a st ationary st ate that

works without hitches. With Keynes, it issues into a stationary state that constantly threatens to break

down. Though Keyness breakdown theory is quite dif f erent f rom Marxs, it has an important f eature in

common with the latter: in both theories, t he breakdown is mot ivated by causes inherent to the working of

the economic engine, not by the action of f actors external to it. This f eature naturally qualif ies Keyness

theory f or the role of rationalizer of anti-capitalist volition.24

Some fundamentalist Marxian political economist s continue to adherein our view, mistakenly, given

changed conditionsto Marxs t heory of the tendential law of the rate of prof it to f all due to rising organiccomposition, which was directly applicable in the nineteenth century but not in the twentieth. Part of the

reaso n for clinging to such views (which were not , however, prominent in Marxian econo mics until the

1970s) no doubt has to do with the way in which it is commonly interpreted as an absolute economic

breakdown theory, which appears to justif y a revolut ionary politics as a mechanical, even automatic,

response. For many, the class ical falling rate o f prof it theory seems immune to ref ormist politics and

sho uld be advanced precisely f or that reaso n. Thus, Rick Kuhn, who recently received the Isaac and Tamara

Deutscher Memorial Prize f or his book Henryk Grossman and the Recovery of Marxism, st rongly

emphasizes the importance of the class ical Marxian tendential law of the f alling rate of prof it as a

breakdown theory of capitalism ( la Grossman); using this not ion to distinguish it f rom Marxian analyses

impacted by the Keynesian revolut ion, and thus of an allegedly more ref ormist nature. As Kuhn himselfstates, The logic of his [Grossmans] theory of breakdown is st ill self- evidently anathema to those

committed to a reformist path to socialism, let alone proponents o f a stable and humane capitalism.25

Yet, although it is reasonable to talk today of a partial breakdown of the accumulation process under

conditions of monopoly capital and industrial maturity, no absolute economic breakdown of the system is

to be expected. The mos t likely prospect (outside of global environmental collapse or nuclear holocaust) is

one o f long-run economic stagnation in the advanced capitalist economies, coupled with cont inuing

f inancial instability, heavy military spending (and war), a growing sales ef f ort , etc. The system issues into a

stationary state that constantly threatens to break down but never really does, s ince stagnation can

continue more o r less indef initely, even with growing hardship for t hose at the bott om of society. Such

conditions are likely to last, and indeed worsenabsent ef f ective political organizat ion with the aim of

putt ing the economy and so ciety on a new, more egalitarian and sustainable, i.e., socialist , foundat ion.
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This assessment does not ref lect an underconsumptionist argument on our part, as Palley suggests, but

rather an overaccumulationist one.26 Indeed, we st ress the f act that it is the accumulation, or savings-and-

investment process, that is the problem. Simple promot ion o f higher wages o r income redistribution will, no

doubt, provide some welcome relief t o a port ion of societyto the very limited extent t hat this can be

achieved within the systembut such measures will not solve the underlying problem. Much more

revolutionary social changes are needed. Palleys radical structural Keynesian position, which lies in the

tradition o f ort hodox Keynesianism and argues f or something like a new New Deal as the ultimate solution,

is one that we cannot accept in f ull, simply because it excludes the roo t problem: the accumulation of

capital itself .27

Realism and Revolution

Were the st ory to s to p here, this would be a relatively minor reprise of an old debate. But, to t he contrary,

we believe the importance of the dialogue between Monthly Reviewand Palley, and between Marxists and

structural Keynesians, is more valuable today than at any time in decades. It is not merely helping each side

tighten its analysis and understanding of the crisis. There is a popular political awakening to the crisis that

is of the utmost importance to our f utures. In these political struggles, on virtually every tangible issue at

the present moment in history, socialists and structural Keynesians, such as Palley, will undoubtedly battle

as close allies. In the advanced capitalist state, it is not the t ransition to socialism that is on the immediate

horizon as a political possibility, but something like a new New Dealperhaps even conceived in a more

radical way. Recall that Keynes o f f ered various prescriptions f or t he failures of the capital-accumulation

process, such as: increased state spending on civilian goods, a radical redistribution of income, a

somewhat comprehensive socialisation o f investment, a euthanasia of the rentier, and a degree of

national planning. There is no denying that, f or the vast majority of what could be called the lef t in the

United States, this is the immediate economic agenda.

Keynes (like Palley today) clearly thought such measures f easible within the system. On this, however, we

concur with Sweezy, who stated that Keynes was dead wrong. Measures such as the somewhat

comprehensive socialisation of investment and the euthanasia of the rentier, not to mention a truly

radical income and wealth redistribution, are totally antithetical to the po litical and ideological structure ofthe society and would never get through without a very basic change in the nature o f the society.28

We believe, in time, as the political struggle deepens, this will become increasingly clear. The solution to the

accumulation crisis (and to t he wider problems of so cial and environmental devastation, and militarism and

imperialism, att ributable to the system) requires the eventual replacement o f capitalism with a system more

attuned to equality and sustainability, if our species is go ing to have much of a f uture. How this process will

occur is unclear and cannot be predicted f rom past experience; we must be humble and open-minded.

Palley, we suspect, is convinced that the system will prove malleable, and capitalism will prove compatible

with a humane and egalitarian social order. We respectf ully disagree. This is a debate that must be

continued and that will be revisited in the months and years t o come.

In the meantime, genuine progress ives have important work to do together.

Notes

1. Harry Magdof f and Paul M. Sweezy, Listen, Keynesians! Monthly Review34, no. 8 (January 1983),

1-11.

2. See Howard Wattel, ed., The Policy Consequences of John Maynard Keynes (Londo n: Macmillan,

1985).

3. The issue of stagnation and the f inancial explosion was raised in Sweezys art icle Why

Stagnation? (Monthly Review34, no. 2 [June 1982], 1-10, ref erred to in Listen, Keynesians! See

also Magdof f and Sweezys book f rom this period, Stagnation and the Financial Explosion (New York:

Monthly Review Press, 1987).

4. Paul M. Sweezy, Interview in David C. Colander and Harry Landreth, eds., The Coming of
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Keynesianism to America (Brookf ield, Vermont: Edward Elgar, 1996), 84.

5. Joseph A. Schumpeter, Ten Great Economists (New York: Oxford University Press, 1965), 288-89.

6. Paul M. Sweezy, The Present as History(New York: Monthly Review Press, 1953), 253-62. The

argument on monopoly and stagnation that Paul Baran and Paul Sweezy developed in Monopoly

Capital(New York: Monthly Review Press, 1966) had less to do with Keynes than with the work of the

Polish economist Michal Kalecki, who developed the main breakthroughs associated with the

Keynesian revolution independently of and befo re Keynes, based on his knowledge of Marxian

economics.

7. Joan Robinson, Review ofMoney, Trade and Economic Growth by J. G. Johnson, Economic

Journal72, no. 287 (September 1962), 690-92; Lynn Turgeon, Bastard Keynesianism (Westport,

Conn.: Greenwood, 1996).

8. Harry Magdof f and Paul M. Sweezy, Financial Instability: Where Will It All End? Monthly Review34,

no. 6 (November 1982), 18-23 (reprinted in this issue). This was not the f irst time that they had

addressed Minskys work. See Harry Magdof f and Paul M. Sweezy, The End of Prosperity(New York:

Monthly Review Press , 1977), 133-36. Minskys art icle was reprinted in Can It Happen Again?

(Armonk, New York: M.E. Sharpe, 1982).

9. Joseph Schumpeter, Ten Great Economists,286.

10. Paul Krugman, The Accidental Theorist(New York: Nort on, 1998), 31.

11. Paul Krugman, Introduction to the New Edition, in John Maynard Keynes, The General Theory of

Employment, Interest and Money(New York: Palgrave Macmillan, 2007), xxxiv-xxxviii.

12. Cassidy, How Markets Fail(New York: Farrar, Strauss and Giroux, 2009), 205-06.

13. See, for example, Cassidy, How Markets Fail, 215-17; Ricardo Bellof iore and Joseph Halevi,

Magdof f -Sweezy and Minsky on the Real Subsumption of Labour to Finance, fort hcoming in V.

Tavasci and J. Topo rowski, eds., Minsky, Financial Development and Crises (London: Palgrave, 2010),

htt p://www.u-bourgogne.f r/CEMF/z-outils/documents/communications%202009/AHE.pdf ; John

Bellamy Foster and Fred Magdof f , The Great Financial Crisis (New York: Monthly Review Press,2009), 17-21.

14. Thomas Palley, The Limits of Minskys Financial Instability Hypothesis as an Explanation of the

Crisis, Monthly Review61, no. 11 (April 2010).

15. Hyman P. Minsky, Stabilizing an Unstable Economy(New York: McGraw Hill, 2008).

16. Hyman Minsky, Financial Crises and the Evolution of Capitalism, in M. Gott diener, ed., Capitalist

Development and Crisis Theory(New York: St. Martins Press, 1989), 391-403.

17. Palley, The Limits of Minskys Financial Instability Hypothesis; Thomas Palley, A Theory o f

Minsky Super-Cycles and Financial Crises, Macroeconomic Policy Inst itute, Hans Bckler Stif tung,

http://.im-boeckler.de.

18. No such disproport ionate growth of f inancial prof its is recorded in the years prior to the 1929

stock market crash. See Solomon Fabricant, Recent Corporate Prof its in the United States,

National Bureau of Economic Research, Bulletin 50 (April 1934), table 3.

19. Piero Ferri and Hyman P. Minsky, Market Processes and Thwarting Systems, Structural Change

and Economic Dynamics 3, no. 1 (1992), 79-91.

20. There is also an international trade and job of f shoring part of Palleys argument that we have

chosen not to address here.

21.

Paul M. Sweezy, More (or Less) o n Globalizat ion, Monthly Review49, no. 4 (September 1997),149.

22. Palley claims, unreasonably in our view, that Magdof f and Sweezy recognized the signif icance of

debt but they failed to recognize the ability of the f inancial system to keep expanding the supply of

credit. As support, he cites pieces that they wrote in 1978! Financialization was only then in its early
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stages, and they cont inued to write up to the late 1990s on the f inancial explosion and the means by

which credit was expanded.

23. See John Bellamy Fos ter and Robert W. McChesney, Monopoly-Finance Capital and the Paradox

of Accumulation, Monthly Review61, no. 5 (October 2009), 1-20.

24. Schumpeter, Ten Great Economists, 283-84.

25. Rick Kuhn, Economic Crisis and t he Responsibility of Socialists, International Socialist Review68

(November-December 2009, online edition), http://isreview.org, and Henryk Grossman and the

Recovery of Marxism (Urbana: University of Illinois Press, 2007), 124-48. On the breakdown theory

cont roversy, see Paul M. Sweezy, The Theory of Capitalist Development(New York: Monthly Review

Press, 1942), 190-213. For discuss ions o f Marxs f alling rate of prof it tendency (due to rising organic

compos ition), see Paul M. Sweezy, Four Lectures on Marxism (New York: Monthly Review Press,

1989), 46-54, and Michael A. Lebowitz, Following Marx(Boston: Brill, 2009), 103-56.

26. On underconsumption versus overaccumulation, see John Bellamy Foster, The Theory of Monopoly

Capitalism (New York: Monthly Review Press , 1986), 75-93. The term underconsumption was

sometimes used in the early Keynesian era in referring to all theories of the non-spending (or

shortage o f ef f ective demand) type. But this usage is no longer common. See Joseph A. Schumpeter,

A History of Economic Analysis (New York: Oxford University Press, 1954), 740n.

27. See John Bellamy Foster and Robert W. McChesney, A New New Deal Under Obama? Monthly

Review60, no. 9 (February 2009), 1-11.

28. Keynes, The General Theory, 372-81; Sweezy, Interview in Colander and Landreth, The Coming of

Keynesianism to America, 83.
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Documents

Listen Keynesians, It’s the System! Response to Palley