The%20Rise%20of%20the%20Keynesian%20State%20-%20I

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The Rise of the Keynesian State - I

• Nationally

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Keynesian State

• The term Keynesian derives from the name of the
  economist John Maynard Keynes
• Keynes developed an economic theory of the
  planning state for active government intervention
• Even when policy makers were not consciously
  Keynesian, his theory dominated policy for 30
  years
• As Keynesian policies failed in the late 1960s
  both the Keynesian state his theories entered
  crisis

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Keynesian State

• State usually understood as nation state
• i.e., national government
• But state can be understood more broadly
• governments, plus
• set of all institutions organizing a particular
  social order
• Keynesian state exists at several levels
• sub-national (regional, muncipal)
• national
• supra-national

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Elements of Analysis in this Section

• Historical Sketch of Emergence Development
• Social political character of Rise
• See how economic is rooted in social
  political
• See how economic is social political

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Prelude Source Great Depression

• Great Depression crisis of earlier order
• Earlier order involved
• Business cycle as growth regulator
• Taylorism, Fordism to control labor
• Repression of trade unions
• More limited government regulation of economy
• More laissez-faire
• Quasi-gold standard (at intl level)

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Business Cycle as Regulator

• when wage ? exceeded ? of productivity,
• profits dropped (often generated financial
  crisis)
• business cut back on I ? ? total output
• downturn ? increased unemployment
• ? downward pressure on wages
• ? restoration of profits, investment growth

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Crisis of Business Cycle

• In Great Depression downturn didnt produce an
  upturn
• Downturn produced Stock Market Crash of 29
• Economic activity prices fell, stayed down
• Unemployment rose dramatically, stayed high
• Wages fell, but increased profits dint raise I
• Investment fells, stayed down

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Behind Persistence of Depression

• Depth of unemployment despair
• Generated a collective refusal of suffering due
  to impersonal forces
• Rise of new form of labor organization
• waged labor forms industrial unions, CIO
• unwaged, unemployed demand support
• unemployment compensation to finance adjustment
• social security in face of financial collapse
• New demands for full employment, rising wages

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Capitalist Adaptation - I

• At the level of theory Keynes
• From classical view of wages as cost
• To understanding that both wages profits can ?
• ? wages ???costs but also ? demand
• ? pressure for I to raise productivity and reduce
  costs
• Economic theory extended to social sphere
• e.g., human capital theory, growth theory
• provided logic for investment in education, RD,
  welfare, etc.

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Capitalist Adaptation - II

• At the level of policy New Social Compact
• Progressive response (unlike Nazis, Stalinists)
• Accepted unions, imposed bargaining, ? wages
• Subsidized I to ??productivity (WWII)
• Strict financial regulation (to avoid crises)
• Socialization of adjustment costs in UI Social
  Security

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Capitalist Adaptation - III

• Post-war gifts of productive assets to private
  industry
• Full Employment Act of 1946
• Fordist production, fordist education
• Restoration of patriarchal nuclear family
• Racial hierarchy on job and off (ghetoization)
• Cold War, Point IV

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Capitalist Adaptation - IV

• Post-1950s investment in education central
  cities
• Post Sputnik Space Race
• Civil Rights Act
• Peace Corps Vista
• Green Berets
• Cuban Missle Crisis
• Bay of Pigs

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The Rise of the Keynesian State - II

• Internationally

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Preoccupations of US Policy Makers, During
After WWII

• Planning for reconstruction of world order began
  during WWII,
• Before resolution of war was clear
• Basis was Keynesianism rather than Nazism or
  Stalinism (assuming the Allies won)
• Primary Aim Stability for trade investment

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Stability

• Stability desired vis à vis instability of Great
  Depression
• Depression, intl circulation of depression
• breakdown in gold standard intl trade
• Controls on capital flows
• Defaults on intl debts
• Stability desired vis à vis WWII
• Disruption of intl trade
• Disruption of intl investment

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No Going Back

• Refusal to return to Gold Standard
• Refusal of Free Markets in Currencies
• Refusal of Keynes proposal for intl currency to
  be regulated by independent global central bank

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SolutionsEconomic Political

• Bretton Woods Agreements fixed exchange rates
  ??national foreign exchange reserves
• ? International Monetary Fund (pool of
  reserves)
• ? Keynesian Nation state handles adjustment
• GATT toward free trade
• Free mobility of capital (for investment)
• United Nations (to avoid war foster intl
  cooperation)

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Implementation

• US occupation and re-engineering of management of
  Germany Japan, e.g., land reform union
  busting
• Marshall Plan in Europe as a whole
• Emergence of multinational corporation as major
  vehicle of intl investment
• Replacement of colonial empires being torn by
  independence movements
• Pax Americana nation/elite building

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