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http://mo nthlyreview.o rg/2010/04/01/listen-keynesians-its-the-system-respo nse-to -palley

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

Jo hn Bellamy Fo ster and Ro bert W. McChesney mo re o n Eco no mics , Glo bal Eco no mic Crisis

John Bellamy Foster (jf oster [at] is editor of Monthly Review, prof essor of sociology at the University of Oregon, and author (with Fred Magdof f ) of The Great Financial Crisis (Monthly Review Press, 2009). Robert W. McChesney (rwmcches [at] 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). T homas I. Palley sent John Bellamy Foster this article in October 2009 f or 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 Marxists (like yourself ) and structural Keynesians (like myself ). Palleys piece addressed (along with much else) the article Monopoly-Finance Capital and the Paradox of Accumulation by John Bellamy Foster and Robert W. McChesney in the October 2009 issue of Monthly Review. In the same spirit of promoting dialogue between Marxists and Keynesians on the present crisis, we agreed to publish his contribution, together with the f ollowing response by Foster and McChesney, in this issue of MR. T he Editors T he Problem In an article entitled Listen, Keynesians!, published in January 1983 in Monthly Review, Harry Magdof f and Paul Sweezy argued that the radical break that John Maynard Keyness General Theory of Employment, Interest and Money (1936) represented f or orthodox economics lay in the f act that For the f irst time the possibility was f rankly f aced, indeed placed at the very center of the analysis, that breakdowns of the accumulation process, the heart and soul of economic growth, might be built into the system and non-self correcting.1 Sweezy made Listen, Keynesians! the basis f or his contribution to the Keynes centennial meeting of economists at Hof stra 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 of supply-side economics (the very antithesis of Keyness views), and the emergence of new contradictions, such as f inancialization. It was theref ore 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 strong stagnation tendency.3 Sweezy was a Marxist economist, but one who had also been inf luenced by the Keynesian revolution at its inception, embracing some of the more radical conclusions of Keyness economics, which he believed f it well within a Marxian political and ideological f ramework.4 It was possible, he argued, to be both a socialist and an orthodox Keynesianas in the case of Joan Robinson, Keyness younger colleague at Cambridge University and one of the f oremost economists of her day, who f requently wrote f or Monthly Review. As Joseph Schumpeter said of Keyness early f ollowers, most orthodox Keynesians are radicals in one sense or anotheralthough the same could not be claimed, he added, f or Keynes himself .5

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 other. While extolling the virtues of orthodox Keynesianism, Sweezy was clear on its f ailings. Keynes completely ignores the problems of monopoly and ignores technological change. Most f atally, Keynes internalized the major unspoken premisethat capitalism is the only possible f orm of civilized society.6 Sweezy and Monthly Reviews criticism of Keynesian economics increased in the postwar generation, as what Robinson termed bastard Keynsianism became the order of the day f or mainstream economics and policymakers f rom Harry Truman to Richard Nixon.7 T his sanitized version of Keynsianism dropped much of the concern with inequality and social spending, and regarded Keynes as providing a toolkit of government policies to manipulate the short-term business cycle and thereby avoid recession and inf lation. In the United States, this meant, in practice, military Keynesianism. Bastard Keynesians proclaimed that, with smart government policies, the system would work beautif ully. T he stagf lation of the 1970s demolished this belief and lef t establishment Keynesianism largely discredited. In mainstream discourse, it increasingly was f ramed as the cause of capitalisms growth problems, not the cure. Listen, Keynesians! by Magdof f and Sweezy constituted a call f or those Keynesians who might still be true to Keyness own way of thinking, to return to his central point that the capital accumulation or savingsand-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 the 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 Depression of the 1930s, was still an open one. T hey 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 on the crucially important destabilizing role of the f inancial system in advanced capitalist countries. Magdof f and Sweezy agreed that Minskys argument in his 1982 Challenge article Can It Happen Again? in which he suggested that it was now unlikely that a f inancial crisis would lead to a deep depression 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 domestic U.S. economyin abstraction f rom the vast and vastly complicated international economy [and international f inancial realm] of which in f act it f orms a tightly integrated part. T he exclusive f ocus on 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. T his posed the possibility that the Federal Reserve (or the central banks of the leading capitalist countries working in tandem) 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 of the economy will culminate, as it has so many times in the past, in a panic f ollowed by a debt-def lation depression of the kind that overwhelmed world capitalism in the early 1930s? Or have the institutional 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 these questions. But in the meantime it is possible to advance a plausible case f or either the optimistic or the pessimistic view. T he 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 def y ef f orts at control during a painf ul and possibly protracted def lationary process. We ourselves have always leaned to the view that this is the most probable outcome of the kind of deeply ingrained f inancial weakening of the economy we are now witnessing.8

Still, such warnings f ell on deaf ears. T hose economists still generally working in Keyness own tradition, like Tobin, Galbraith, and Minskywho understood that capitalism did not naturally tend toward f ull employmentremained committed to the idea that an active state could stabilize the system, removing its worst irrationalities. T he great majority of economists, however, had abandoned Keynes altogether along with the need f or af f irmative government and had returned under one mantle or another, to the preKeynesian belief in the automatically 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 T he question Can It Happen Again? which Minsky asked, and Magdof f and Sweezy gave a qualif ied Yes to, was generally dismissed as no longer even worth raising. Today, more than a quarter of a century later, the f ailures of the capitalist economy and capitalist economics raised by Magdof f and Sweezy in Listen, Keynesians! are still with us. T he f reef all of the economy associated with the Great Recession has revealed the impoverishment of mainstream 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 of the twentieth century and the beginning of 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 simple 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 or minus a random error ref lecting the f act that he is not quite God.T he obvious (to me) point that the average unemployment rate over the next ten years will be what the Fed wants it to 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 to 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 introduction to a new edition of Keyness General Theory, Krugman was to insist that Keynes was wrong about the direction of the modern economy, mistaking an episode f or a trend, since lack of ef f ective demand, ultra-low interest rates, a declining marginal ef f iciency of capital under conditions of industrial 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 took 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 T he Return of Marx and Keynes T his intellectual def ault of orthodox economics meant that those seeking answers in the f ace of the economic f reef all of the last f ew years were f orced to reach out beyond the increasingly narrow conf ines of economic orthodoxyto Keynes himself , and beyond him, to Minskys heterodox theory of f inancial instability. Many dubbed the f inancial crash of 2008 a Minsky Moment.12 Moreover, at the same time as some turned back to Keynes, others turned to Marx and his more f undamental critique of capitalism. And, just as Keynes and Marx are now sometimes conjoined in the minds of those trying to understand the current economic mess, so increasingly are the heterodox theories of Minsky and Magdof f and Sweezy juxtaposed, representing the Keynesian and Marxian sides of the attempt to understand the f inancial contradictions of capitalism.13

It is this which, in our opinion, makes T homas Palleys article, T he 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 economist (i.e., operating within the tradition of Keynes himself ), attempting to extend Minskys theory of f inancial instability in order to account f or the current economic malaise. For Palley, like Keynes and Minsky, the capital-accumulation process is f lawed, but is not beyond repair. Rather the state, he argues, should intervene and institute a true Keynesian approacha position he ref ers to as structural Keynesianism. T he causes of f inancial instability and stagnation can theref ore be traced, in Palleys view, not so much to capitalism itself , as to the unf ortunate anti-Keynesian nature of neoliberal economic policy. Our own perspective is dif f erent. T he root problem, as we see it, is not neoliberalism but capitalism itself . Neoliberalism (the economics of Hayek, Friedman, etc.) did not emerge as a dark conspiracy to drag capitalism f rom high growth rates and vibrancy; it became the orthodoxy when the system was in tatters in the 1970s, and when (bastard) Keynesianism was the establishment doctrine in disrepute. T he choice bef ore nations in that decade of crisis was to turn sharply to the lef t and go beyond existing 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 economyf or a genuine Keynesianism, associated with social democracy of the Scandinavian variety is, in our view, now gone. T he deepening stagnation of the mature, monopolistic economy, and the growth of f inancialization in an attempt to leverage up the system, represent the f ailure of the capital accumulation process at the systems rotting center. T he capitalist system as a whole is approaching its historic limits and needs to be transcended if the real needs of 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 the 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. T hese issues are not conf ined to the abstruse 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 puzzle of the greatest f inancial and economic crisis since the Great Depression. Minskys f inancial instability hypothesis argued that the f inancial structure 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 Depression: (1) the role of the Federal Reserve Board (along with the central banks of the other leading capitalist countries) as lenders of last resort; and (2) big government def icits, inevitably rising in a crisis due to shortf 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 of f inancial crisis and needed government intervention that have recently been dubbed Minsky moments.

One dif f iculty of 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 studies were rare in his workand hence he did not develop what could be called a theory of the f inancialization of the economy, i.e., the shif t in the center of gravity of the economy f rom production to f inance. Nor did he deal with the question of 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 the 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. T his was, however, never developed into a coherent analysis.16 T his lack of a theory of f inancialization as a long-run trend, along with Minskys repeated contention that a debt def lation resembling the 1930s would mostly likely not occur again (due to big government and the lender of last resort mechanism), have been the main stumbling blocks f or those seeking to apply his model to the Great Financial Crash and Great Recession of the last f ew years. At the same time, the f act that Minskys f inancial instability hypothesis was seen almost entirely as a short-term, cyclical phenomenon, presenting 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 demonstrating that the 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. T he 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 of the f inancialization process. Bank regulations and regulations on f inancial institutions in general are more and more relaxed, the f urther the economy gets f orm the last major crisis. T his, then, generates a progressively weaker f inancial architecture, increasing the amplitude of f inancial risk in each successive basic cycle. T his 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. T he 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 of capitalism.18 T he 1991 article by Piero Ferri and Minsky that Palley cites in this respect makes no mention of such a super-cycle, and is, in f act, aimed at explaining why endogenously generated f inancial crises do not normally lead to explosive conclusions, due to homeostatic 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 f or the development of the housing bubble (including the excesses of subprime mortgage lending, collateral debt obligations, credit def ault swaps, etc.) as well as its eventual collapse. Nevertheless, it is important to recognize, in response to this super-cycle argument, that the 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 only one phase is not a cycle.

Having converted Minsky somewhat dubiously 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 structural 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 itting 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 disastrous crash of 2008. In this view, neoliberalism appears to be the primary cause of both f inancialization and stagnation. With f inance in crisis, stagnation, he claims, is the logical next step of 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 f ocus of progressive-oriented economists. It is a view that also has great inf luence among progressives in general. Magdof f and Sweezys analysis of f inancial instability, in contrast to that of Minsky, was never concerned primarily with business cycle f luctuations (although they f ollowed these closely), but rather with the longrun process of an expanding f inancial superstructure, as they called it, on top of a stagnating productive basea process described by Sweezy as the f inancialization of the capital accumulation process.21 Although they discussed f inancial crises as they emerged, and the tendency to remove f inancial regulations and to allow greater riskalong with the development of more exotic f inancial products to meet the unending demand f or these products coming f rom capital stuck in a condition of overaccumulationthe real point of their argument was directed elsewhere: at how f inancial expansion promoted economic growth, without overcoming the underlying stagnation problems of the system.22 T he contradictions displayed by todays economy in this perspective thus go f ar beyond neoliberal economic policy or a super-Minsky cycle. As explained numerous times in Monthly Review, the underlying problem of accumulation in the advanced economies today is one of a deep-seated stagnation tendency arising f rom a high degree of monopoly (oligopoly) and industrial maturity. More actual and potential economic surplus is generated than can be easily or prof itably absorbed by consumption and investment, pulling the economy down into a slow growth state. As a result, accumulation becomes increasingly dependent on special stimulative f actors. Historically, over the entire post-Second World War period, the most persistent of these have been military spending, the sales ef f ort, and the growth of debt-leveraged speculation (i.e., f inancialization)and increasingly it is this last that has carried most of the weight. As the economy has slowed down, decade by decade, since the 1960s, the f inancialization of the economy has grown by leaps and bounds, tending to lif t an accumulation process weighted down by overcapacity, but at the cost of worsening f inancial crises. Stagnation has nonetheless continually reasserted itself ; most recently in the Great Recession f ollowing the f inancial bust. Since the only f easible means of restarting the accumulation process at this point is renewed f inancialization, the state at present is actively pursuing this strategy (supported by a capitalist class more and more geared to asset appreciation through speculation)even af ter the worst f inancialeconomic crisis since the 1930s. T hus, the stage is set f or bigger f inancial bubbles that will burst in the end, pulling the economy back down again. T his can be described as the stagnation-f inancialization trap.23

Our own argument, which was derived f rom that of 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 most conducive to todays monopoly-f inance capital (or the era of f inancialized monopoly capital). T he f inancialization of the capital accumulation process was a response to a deep tendency to economic stagnation rooted in the development of the monopoly stage of capitalism. Capital, f aced with a shortf all of prof itable investment opportunities, sought ref uge increasingly in f inancial speculation made possible (as Minsky repeatedly noted) by the era of big government and big banks. Consequently, if stagnation was the chief contradiction of monopoly capital proper, this has now evolved into the twof old contradiction of stagnation-f inancialization under the phase of 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 stagnationf inancialization trap that characterizes the age of monopoly-f inance capital. T here is no super-Minsky cycle that leads to a super-Minsky recovery; no meaningf ul structural Keynesian response to the crisis; no turning back the clock to a lost Keynesian golden age. T he f ault is in the system. Marx versus Keynes Marxian economic theory has, of course, sometimes been associated with a breakdown theory perspectivealthough we would argue that this has never been the main thrust of the Marxian approach. Keynes too has sometimes been seen as pointing to economic breakdown. As Schumpeter put it, With Marx, capitalist evolution issues into breakdown. With J.S. Mill, it issues into a stationary state that works without hitches. With Keynes, it issues into a stationary state that constantly threatens to break down. T hough 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, the breakdown is motivated by causes inherent to the working of the economic engine, not by the action of f actors external to it. T his f eature naturally qualif ies Keyness theory f or the role of rationalizer of anti-capitalist volition.24 Some f undamentalist Marxian political economists continue to adherein our view, mistakenly, given changed conditionsto Marxs theory of the tendential law of the rate of prof it to f all due to rising organic composition, which was directly applicable in the nineteenth century but not in the twentieth. Part of the reason f or clinging to such views (which were not, however, prominent in Marxian economics 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 revolutionary politics as a mechanical, even automatic, response. For many, the classical f alling rate of prof it theory seems immune to ref ormist politics and should be advanced precisely f or that reason. T hus, Rick Kuhn, who recently received the Isaac and Tamara Deutscher Memorial Prize f or his book Henryk Grossman and the Recovery of Marxism , strongly emphasizes the importance of the classical Marxian tendential law of the f alling rate of prof it as a breakdown theory of capitalism ( la Grossman); using this notion to distinguish it f rom Marxian analyses impacted by the Keynesian revolution, and thus of an allegedly more ref ormist nature. As Kuhn himself states, T he logic of his [Grossmans] theory of breakdown is still self -evidently anathema to those committed to a ref ormist path to socialism, let alone proponents of 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. T he most likely prospect (outside of global environmental collapse or nuclear holocaust) is one of long-run economic stagnation in the advanced capitalist economies, coupled with continuing f inancial instability, heavy military spending (and war), a growing sales ef f ort, etc. T he system issues into a stationary state that constantly threatens to break down but never really does, since stagnation can continue more or less indef initely, even with growing hardship f or those at the bottom of society. Such conditions are likely to last, and indeed worsenabsent ef f ective political organization with the aim of putting the economy and society on a new, more egalitarian and sustainable, i.e., socialist, f oundation.

T his assessment does not ref lect an underconsumptionist argument on our part, as Palley suggests, but rather an overaccumulationist one.26 Indeed, we stress the f act that it is the accumulation, or savings-andinvestment process, that is the problem. Simple promotion of higher wages or income redistribution will, no doubt, provide some welcome relief to a portion of societyto the very limited extent that 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 of orthodox 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 root problem: the accumulation of capital itself .27 Realism and Revolution Were the story to stop here, this would be a relatively minor reprise of an old debate. But, to the contrary, we believe the importance of the dialogue between Monthly Review and 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. T here 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 transition 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 of f ered various prescriptions f or the f ailures of the capital-accumulation process, such as: increased state spending on civilian goods, a radical redistribution of income, a somewhat comprehensive socialisation of investment, a euthanasia of the rentier, and a degree of national planning. T here 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 political and ideological structure of the society and would never get through without a very basic change in the nature of the society.28 We believe, in time, as the political struggle deepens, this will become increasingly clear. T he solution to the accumulation crisis (and to the wider problems of social and environmental devastation, and militarism and imperialism, attributable to the system) requires the eventual replacement of capitalism with a system more attuned to equality and sustainability, if our species is going 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. T his is a debate that must be continued and that will be revisited in the months and years to come. In the meantime, genuine progressives have important work to do together. Notes 1. Harry Magdof f and Paul M. Sweezy, Listen, Keynesians! Monthly Review 34, no. 8 (January 1983), 1-11. 2. See Howard Wattel, ed., The Policy Consequences of John Maynard Keynes (London: Macmillan, 1985). 3. T he issue of stagnation and the f inancial explosion was raised in Sweezys article Why Stagnation? (Monthly Review 34, 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

Keynesianism to America (Brookf ield, Vermont: Edward Elgar, 1996), 84. 5. Joseph A. Schumpeter, Ten Great Economists (New York: Oxf ord University Press, 1965), 288-89. 6. Paul M. Sweezy, The Present as History (New York: Monthly Review Press, 1953), 253-62. T he 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 bef ore Keynes, based on his knowledge of Marxian economics. 7. Joan Robinson, Review of Money, Trade and Economic Growth by J. G. Johnson, Economic Journal 72, 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 Review 34, no. 6 (November 1982), 18-23 (reprinted in this issue). T his 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 article 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: Norton, 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, f or 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, f orthcoming in V. Tavasci and J. Toporowski, eds., Minsky, Financial Development and Crises (London: Palgrave, 2010), http://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. T homas Palley, T he Limits of Minskys Financial Instability Hypothesis as an Explanation of the Crisis, Monthly Review 61, 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. Gottdiener, ed., Capitalist Development and Crisis Theory (New York: St. Martins Press, 1989), 391-403. 17. Palley, T he Limits of Minskys Financial Instability Hypothesis; T homas Palley, A T heory of Minsky Super-Cycles and Financial Crises, Macroeconomic Policy Institute, Hans Bckler Stif tung, 18. No such disproportionate 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 T hwarting Systems, Structural Change and Economic Dynamics 3, no. 1 (1992), 79-91. 20. T here 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) on Globalization, Monthly Review 49, 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 f ailed 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

stages, and they continued to write up to the late 1990s on the f inancial explosion and the means by which credit was expanded. 23. See John Bellamy Foster and Robert W. McChesney, Monopoly-Finance Capital and the Paradox of Accumulation, Monthly Review 61, no. 5 (October 2009), 1-20. 24. Schumpeter, Ten Great Economists, 283-84. 25. Rick Kuhn, Economic Crisis and the Responsibility of Socialists, International Socialist Review 68 (November-December 2009, online edition),, and Henryk Grossman and the Recovery of Marxism (Urbana: University of Illinois Press, 2007), 124-48. On the breakdown theory controversy, see Paul M. Sweezy, The Theory of Capitalist Development (New York: Monthly Review Press, 1942), 190-213. For discussions of Marxs f alling rate of prof it tendency (due to rising organic composition), 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. T he term underconsumption was sometimes used in the early Keynesian era in ref erring to all theories of the non-spending (or shortage of ef f ective demand) type. But this usage is no longer common. See Joseph A. Schumpeter, A History of Economic Analysis (New York: Oxf ord University Press, 1954), 740n. 27. See John Bellamy Foster and Robert W. McChesney, A New New Deal Under Obama? Monthly Review 60, 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.