The Limits of the Mixed Economy. Paul Mattick 1969



Evaluating the work of Keynes, economists came to “distinguish the problems he opened up from the particular solutions he suggested. These solutions might all be altered, or discarded and replaced,” it was said, “and his work would still be revolutionary in the opening up of problems and the admission of the possibility of some solution different from the one that had previously been accepted and had foreclosed fresh inquiry.”[1] In this, Keynes “succeeded where previous heretics had failed, partly because he came at a time that was ripe to receive his ideas.”[2] Although Keynes’ “theory of stagnation gave modern expression to some indigenous elements stressed in Marx’s ‘break-down’ theory, such as chronic underconsumption, general overproduction and the secularly declining rate of profit, the important practical difference between them, though, is that Keynes sought the remedy in the modification of laissez-faire capitalism through ‘deliberate State action’; whereas Marx dogmatically dismissed any and all such State actions as inevitably and invariably benefiting only ‘the capitalist class’ instead of the economy as a whole.”[3] Possibly it was for this reason “that Keynes was adopted by some economists in recoil from what may have seemed like possible Marxian implications in the great depression”; Marxists they could not become, even though “Marx anticipated Keynes,” because of Marxism’s “misanthropic bent with regard to Western culture which does not represent a very good career line for economists of the West.”[4]

It is the state-organized or “Keynesian” aspect of present-day capitalism which, by serving as a belated but unavoidable critique of the capitalism of old, simultaneously serves as a refutation of Marxism. Even if it is admitted that “the laws of motion which Marx’s model of capitalism revealed may still be visible in American capitalism,” it is maintained that these laws are now “faced with a set of remedies which spring from social attitudes quite beyond his imagination.”[5] Not only Americans but Europeans too refer to a changed capitalism; although “we still commonly speak of England and France as capitalist countries,” it is said, “they are no longer capitalist in the sense understood by Marx and his contemporaries.”[6] In this view, it was Keynes who assisted the capitalist metamorphosis and who made “the greatest single contribution to the techniques of democratic transition. In so doing he helped to show the peoples of the West a way forward which did not lead across the borne of total class war – a bourns from which the wage earners of the West recoil, now that they have seen its raging waters.”[7] Keynesianism is thus celebrated not only as the savior of capital but as the savior of labor as well.

It is of course true that contemporary capitalism differs from the capitalism analyzed by Marx. He did not foresee all the actual changes. Capitalism’s transformation was not only the economic but also the social and political result of international competitive capital accumulation which, by issuing into two world wars and revolutions, led to a rapidly increasing, or even total, state control of national economies. This course of events, however, even if Marx had expected it, would not have affected his economic theory; for these events relate to political reactions to economic crisis situations. Aware of the basic contradictions of capital production and convinced that its expansion and extension could only enlarge and sharpen them, Marx was interested not so much in speculating about the possible staying-powers of capitalism as in developing a revolutionary force to put an end to it.

The celebrated “failure” of Marxism is a failure not of economic theory, but rather of the social and political expectations based on it. Of course, it is also a “failure” of economic theory insofar as its application to reality led to an underestimation of capitalism’s susceptibility to change. However, no reasonable person would demand that Marx should foresee actual social and economic development in all its concrete manifestations. And to the extent that socio-economic development is predictable with some degree of certainty, Marx did rather well, as is demonstrated by the rise of Keynesianism. In the Keynesian formulation, Marx’s findings are silently accepted and simultaneously “remedied” by conscious interventions in the market mechanism.

Marx was not a social reformer interested in the amelioration and perpetuation of existing production relations. For him capitalism had no future because its transformation was already an observable phenomenon. Its expansion was at the same its decay when regarded from a revolutionary instead of from a conservative point of view. With regard to theory, he saw his function not so much as providing the rationale for the ever-changing political actions of his time as in discerning the general trend of capital development at the very start of its international ascendancy.

Future events may be anticipated only on the basis of present knowledge, and predictions are possible only on the assumption that a known pattern of past development will also hold for the future. It may not; yet existing knowledge warrants some expectations and thus allows for actions whose results will confirm or refute these expectations. In view of the past pattern of historical development and on the basis of his own experience, Marx was certainly convinced that the development of capitalism, by giving rise to a revolutionary proletariat, would lead to its abolition. He did not contemplate the possibility of a “second life” for capitalism by way of governmental activities. Nor could he imagine that “Marxism” itself could be transformed into an ideology serving state-capitalism, which accelerates the concentration and centralization tendencies inherent in competitive capital accumulation by political means. Marx’s political expectations have not as yet been realized. The very existence of a modified capitalism and the absence of a revolutionary working class seem to disprove his political theories.

The turn of the century witnessed two parallel trends – the progressive objective “socialization” of bourgeois society and the progressive subjective “bourgeoisification” of the labor movement. When it proved possible to better workers’ conditions within the confines of capitalism, the once radical labor movement turned into an institution providing additional support for the social status quo. Out of the experiences of the labor movement itself arose, the idea that it was possible to transform capitalism into some kind of “socialism” gradually, by way of reforms. Although less sophisticated, Fabianism and Marxian Revisionism anticipated the Keynesian theory; now it is this theory which serves as the ideology of the reformist labor movement. In more senses than one, it was said, the political importance of Keynes’ book “is that at every point, without a single exception, it is in full agreement with Labour policy in this country [England], and what is even more significant, expresses in proper economic form what has been implicit in the Labour Movement’s attitude all along.”[8] Although running counter to Marx’s revolutionary expectations, all this is in conformity with his idea that existing socio-economic conditions determine the ruling ideology.

Although Marx did not concern himself with possible modifications of the capitalist system by way of government controls, his economic theory does not deny the feasibility of such endeavors. It is of course possible to intervene in economic processes by political means. War itself illustrates this as well as Marx’s theory of social revolution. What was important to Marx was the analysis of capital development on the assumption that there were no interventions in the fetishistic accumulation process. Only thus was it possible to detect capitalism’s inherent contradictions and limitations. Marx’s theory does not deny the fact that full employment can and may be created either by government-induced investments or by an increase in the propensity to consume. It simply does not discuss such maneouvers. They are, of course, possibilities, provided that neither policy seriously infringes upon the prevailing social class relations.

Of this Keynes was also fully aware. “Apart from the necessity of central controls to bring about an adjustment between the propensity to consume and the inducement to invest,” he wrote, “there is no more reason to socialize life than there was before.[9]” Favoring the prevailing social relations, he saw no “reason to suppose that the existing system seriously misemploys the factors of production”; the system had failed only in “determining the volume, not the direction, of actual employment.”[10] By affecting only the volume of production, Keynesian interventions in the economy necessarily “adjust” production and consumption in favor of “investments.” Such “adjustments” cannot end the “paradox of poverty in the midst of plenty,” and are not designed to do so. It is precisely for this reason that they are operational as they are still in line with the general tendency of capitalist production to “accumulate capital for the sake of accumulation.”

In contrast with Keynes, Marx saw in capitalism an irrational social mode of production. But as there are no economic processes independent of human activities he called the capitalist irrationality fetishistic behavior. It is the fetishistic self-expansion of capital which determines both the volume and the direction of production. Social control of the economy would imply the conscious determination of both the volume and the direction of production. This would, however, constitute a radical change in existing social relations, based as they are on the subjugation of the working population by way of value production. By insisting that only the volume, not the direction, of production should be subject to government planning, Keynes indicated that he was not concerned with altering the existing class relations but only with removing its dangerous proclivities in times of crisis.

Interventions in the economy have been forced on capitalist governments by circumstances beyond their control. These interventions do not point to a reformative tendency in capitalism. What they do reveal is that the system finds it more and more difficult to solve capitalist problems by strictly capitalistic means. In a consistent capitalist ideology the “new economics” spell not success, but failure. To be sure, government interventions may postpone or mitigate a crisis; but the need for such intervention only bears witness to the depth of the crisis situation.

With the power to side-track depression goes the power to control the boom, and the “business-cycle” may now appear as the expansion and contraction of government-induced production. Since a slackening rate of private capital expansion may be compensated for by government-induced production, the latter may be pared down when private investment increases. Government-induced production may even bolster the rate of economic growth. Conditions of “prosperity” more impressive than those brought forth under laissez-faire conditions may arise, and neither capital nor government show any interest in changing this state of affairs so long as it lasts. At any rate, recent economic history has demonstrated the possibility of a “prosperous” development of the mixed economies.

An unbridled private capital accumulation by way of competition presupposes what has been called a free world market and the free movement of labor and capital between all nations as well as within each of them. Although there never were such conditions, some semblance of them existed in capitalism’s laissez-faire stage. This stage was then celebrated as the capitalist condition per se. In reality, however, it was the case merely of a temporary monopolization of industrial production and of the world market by a few nations, allowing them a vast and rapid accumulation of capital. Their monopolistic positions were often broken by extra-market means, such as state-subsidies, national protection, and warfare. Because it is not capital in the abstract which competes for the markets of the world, but definite national capitals, their economic rivalries take on the form of struggles for political power. “Strictly” economic competition was only nationally possible, and even here it was never “pure.”

Capital accumulation expands the world market and determines its character. But the accumulation process is interrupted or slowed down by insufficient profitability. This lack of profitability has concrete reasons, and with capitalism a world-market system, the concrete reasons will be determined by the structure of the world economy as well as by that of each capitalist nation. The anarchy and national character of capital production prevents the detection, of any definite set of concrete reasons for the conditions of capital stagnation. What appears as the “reason” for the depression is only the result of empirically undetectable causes. The individual capitalist experiences the depression as a decline in the demand for his commodities. The individual nation feels it as a decline of production caused by a lack of markets, and defends itself against foreign competition by trying to secure and enlarge its own market at the expense of other nations.

The rise of “big business” in any particular nation is an expression of a successful reproduction of its capital structure. To achieve an international reorganization although this is also necessary for continuous capital formation, is far more difficult. Big business, outgrowing the frame of the national economy, expanded in all capitalist countries and led to the export of capital and to all manner of international trustification and cartellization. But the “internationalization” thus achieved was less a true internationalization of the market-determined capitalist concentration and centralization process than an attempt to cope with the internationalization of the capitalist production and exchange process without giving up its earlier-developed national form. It also expressed the difficulty of bringing “accumulation for the sake of accumulation” into conformity with the consistently more stable social institutions that developed within the separate national states. No really effective way has been found to repeat on an international scale the competitive accumulation and concentration process that took place in each country individually.

Because the “self-expansion” of capital disregards the particular needs of national states, governments have seldom been in favor of a strict laissez-faire policy in their international economic relations. The “automatic self-expansion” was strongly opposed by all social layers whose interests were vested in the national state as an entity relatively independent of the general development of capital. Not satisfied with the monopolistic “internationalization” of big business, which tended to arrest rather than promote general capital expansion, governments, representing national capitals, expressed their own “internationalism” in a policy of national expansion. The “internationalism” of capitalism thus comes to the fore as an imperialistic nationalism. This presupposed a certain unity between government and capital, brought about by way of collaboration, compromise, or force, which delimited and finally terminated the earlier forms of individualistic competition. To fulfill their new – or rather added – functions, governments entered the arena of international competition with most or all of the national power at their disposal. The earlier system, a state-supported economic competition that might carry through into war, was replaced by a war-like competition, or actual warfare, supported by the national economy.

As long as crises and depressions were effective enough to alter the conditions of production and the structure of capital and thus bring about a resumption of capital expansion, a state of over-accumulation at one level of capital production led to a state of over-accumulation on a higher level of capital production. Under nineteenth-century conditions it was relatively easy to overcome over-accumulation by means of crisis that more or less affected all capital entities on an international scale. But at the turn of the century a point had been reached where the destruction of capital through crisis and competition was no longer sufficient to change the total capital structure towards a greater profitability. The business-cycle as an instrument of accumulation had apparently come to an end; or rather, the business-cycle became a “cycle” of world wars. Although this situation may be explained politically, it was also a consequence of the capitalist accumulation process.

Capital was now “accumulated” in growing measure in the form of armaments. The armaments-race led to an expansion of industry not because it was “profitable” in the regular sense of the term, but because an increasing part of profits could now be “realized” through government purchases. To be sure, the “extra-economic” recourse to war-production was not adopted solely to avoid a business decline; it found its rationalization in political and ideological objectives as well. Wars are not unique to capitalism; but the objectives for which capitalist wars are fought are. Aside from all imaginary reasons, the main objective, made patent by the policies of the victorious powers, is the destruction of the competitor nation or bloc of nations. In its results, then, war is a form of international competition. It is not so much a question of competition by “extra-economic” means as an unmasking of economic competion for a bloody and primitive struggle between men and men.

The resumption of the accumulation process in the wake of a “strictly” economic crisis increases the general scale of production. War, too, results in the revival and increase of economic activity. In either case capital emerges more concentrated and more centralized. And this both in spite and because of the destruction of capital. In a world of internationally-competing capital entities, this implies changes in economic and therewith political power positions. While this is true throughout the capital accumulation process, it is accelerated in times of war and thus becomes quite obvious. Despite the losses of some nations, the gains of others are large enough to initiate a new period of capital expansion soon to excel, in terms of world production, the pre-war level of economic activity.

The general process of capital accumulation, which occurred within a world economy dominated by Great Britain, slowly shifted the locus of economic power. Long before the outbreak of World War I, Germany and the United States had taken over Britain’s power position. While this was one of the reasons for war, the war itself shifted the controlling economic power from Europe to America. The relative stagnation of European capital prior to the First World War was mitigated by a government-fostered armaments race; while America’s slowing rate of capital expansion was reversed with the outbreak of war. Her recovery of 1915 “was generated by the demand for war supplies emanating from European Governments.” Expansion of production “was derived in part from taxation and in part from the sale of securities to individuals and banking interests,” so that the process of American recovery “was generated by an outpouring of purchasing power by way of government treasuries. It did not begin with an expansion of ordinary consumption demand or an increase in the production of private capital goods.”[11]

Although the increase in production was set in motion by the policies of governments engaged in or profiting by war, total world production rose to unprecedented heights. For the warring nations of Europe the post-war period was a time not of real prosperity, but of a slow return to, and an insufficient enlargement of, their pre-war level of production. This was, moreover, at the price of an increasing indebtedness to America and an intensified exploitation of the workers, manifesting itself in lowered living standards. But America prospered, and in 1929 her wealth was two-and-a half times as great as in 1914. Measured by world production economic activity had increased and capital had accumulated. Its seat of strength had shifted from Europe to America. Like previous depression periods, the war had touched off a new expansion of capital and had concentrated it in the strongest capitalist nation. This is further illustrated by America’s foreign financial relations. While in 1914 “American investors held foreign securities amounting to less than 1 billion dollars, in 1924 such private holdings amounted to almost 4.6 billions – or roughly to 5.4 billions, if short-term credits are included. In addition, the government of the United States held foreign government obligations aggregating 11.8 billion dollars. Thus, within the space of .ten years, the foreign securities acquired by the government and the people of the United States were more than fifteen times as great as the amount that had accumulated during the preceding 130 years of the nation’s existence.”[12]

Though American production grew and her “national wealth increased, that portion utilized directly for the reproduction process of wealth continued to decline.”[13] In other words, there was a slackening of the rate of accumulation; the percentage of productive capital in relation to non-productive wealth became less instead of more. This was no longer the type of capital production which characterized the nineteenth century. The expansion of production initiated by war and carried over into peace was not enough to lead to a general expansion of capital production under the conditions of the market-determined economy. After a decade of limited prosperity, restricted largely to the United States, a new collapse of the market system led to new state interventions. These, however, succeeded only in stabilizing depression conditions; the full utilization and further expansion of productive resources had to await another war.[14]

War-production was then, in its effects, not really “waste-production” but a medium for the resumption of the accumulation process. In this sense, it was not only a subsidy to armaments producers but a condition for a better profitability of post-war capitalism. This is an additional reason why, generally, capitalists will object to useful public works and welfare spending but not to the extension of “defense” expenditures. Aside from ideological considerations, experience shows that the possibility of war is intrinsic to capital accumulation and that wars must be won to hasten the expansion process.

The First World War and its aftermath required an enormous extension of governmental controls over the whole of the economy – the so-called “war-socialism.” After the war, some countries returned quickly to what was considered the “normal” state of capital production, characterized by a minimum of government control. Other nations could not achieve “normalcy,” but carried decisive governmental controls from war into peace in order to cope with their internal difficulties and with the changed world situation. The Bolshevik regime adopted the conditions of war-socialism – in a more consistent form – as the model for reconstructing the Russian economy and for transforming private into state-controlled capital production.

Government controls were extended during and after the Second World War, first to wage war more efficiently, and later to maintain social stability in the post-war world. Although the Second World War, like the first, led to a world production higher than the pre-war level, this increase was not enough to sustain more than the American post-war “boom.” In the beginning of 1950, unemployment became once more a dominant issue. With the sole exception of Great Britain, in all Western nations and particularly in the United States the Keynesian anti-slump suggestions were revived. The United Nations Organization saw the need for drawing up a “master-plan” for combating unemployment through world-wide actions. But all the deliberations in this respect came to nothing; they always returned to the general demand that the “creditor nations,” i.e., the United States, extend further credits to the debtor nations. By 1949, however, America found herself in a business depression which had immediate repercussions all over the world. “The fall of 5 per cent in the American national product caused a 80 per cent fall in American imports, and, for a time, in the summer of 1949, threatened to cancel all the progress made in the first year of Marshall Plan aid.”[15]

The Korean War altered the situation once more. The conditions created by the Second World War and the resumption of armaments production for the Korean War do not explain all aspects of the American post-war “boom.” However, the depression which preceded the Korean War and its end by way of the war were obviously connected with the decline and the resumption of government spending. Prior to the Korean War, and despite 20 billion dollars’ worth of American aid to Europe, government expenditures in America dropped considerably from their wartime height. Bank holdings of government securities diminished by 25 billion dollars. With the reversal of the post-war “disarmament” trend caused by the new war, economic activity increased not only in America but throughout the Western world. But despite an increasing rate of government defense spending under the ensuing cold-war conditions, there was no full employment. Only under conditions of actual large-scale warfare, then, in which nearly half of the Gross National Product served the needs of war, was there a full use of productive resources.

Conditions after World War II made it clear that the war had failed to provide the impetus for a market-determined private capital accumulation on a scale sufficient to allow for the retraction of government-induced demand. Any decrease in government spending led to a contraction of economic activity which could be altered only by the resumption of government spending. The best that could be hoped for was a stable relationship between private production and government spending. But even this presupposed a definite rate of economic growth to keep the economy competitive and to prevent the steady growth of unemployment. It has been possible in some measure to stabilize government expenditures but, in the long run, this stabilization itself depends on an increasing rate of capital formation. Without such a rate, government expenditures must increase to compensate for a lack of fixed capital formation. “Between 1947 and 1953,” for instance, in the United States, “real output increased 4.6% a year, whereas the rise averaged only 2.9% annually from 1953 to 1963.”[16] The following gives the percentage distribution of components of Gross National Product at business cycle peaks, in current dollars, from 1948 to 1963. [17]

Component 1948 1953 1957 1960 1963
Government purchases 13.3 22.7 19.5 19.8 21.4
Gross private domestic investment 16.6 13.8 14.9 14.3 14.1
Personal consumption 68.7 63.7 64.4 65.3 63.8
Net exports












While capitalist governments will try with all the means at their disposal to foster private capital accumulation, lack of success will force these same governments to increase their own part in the economy and therewith to increase the difficulties in the way of private capital expansion. At times both policies are tried, or are suggested; namely, to improve the earnings of capital by way of tax reductions, and simultaneously increase government expenditures through deficit-financing. But as the deficit must be covered by private production, this amounts to no more than giving with one hand what the other hand takes, even though the process is stretched out over a long period of time.

There is now general agreement that the conditions of nineteenth century capitalism – the relatively unhampered and market-determined accumulation of private capital – cannot be recaptured. “It is no longer a matter of serious controversy whether government should play a positive role in helping to maintain a high level of economic activity; what we debate nowadays is not the need for controlling business cycles; but rather the nature of government action, its timing and its extent.”[18] Particularly its extent; for if the growth of government control changed the laissez-faire into the “mixed” economy, its further extension is bound to change the latter into something else. While the process that led to the mixed economy is now recognized as irreversible, it is held that the mixed economy itself is permanent, in order to secure that degree of private initiative and private capital production still possible within it.

The traditional form of capital production was once also held to be unalterable, and changed nonetheless. The changes were brought about by political interventions in the apparently self-sufficient market mechanism. They ranged from reform to revolution, from protectionism to imperialism, and they created new social institutions and new vested interests which affected both the character and the direction of capital development. These new institutions and the interests vested in them assure the irreversibility of the process that created them. It seems unlikely, for instance, that the institutional changes brought about by the Russian Revolution and the Russian victory in World War II will be undone. But neither is it feasible to undo the usurption of economic controls by government bodies in the nominally private capitalism of the West. Quite aside from whether or not it should prove economically possible to reduce the “public sector” of the economy, the interests vested in the “public sector” will not abdicate on their own, but will use their institutional power to perpetuate themselves. All that can be expected in this respect is the attempt to arrest the growth of the “public sector” by speeding up the expansion of private capital.

A strictly capitalist private-enterprise economy has never existed; the private property economy was always accompanied by a public sector, whose relative importance varied according to the specific historical conditions of developing capitalist nations. But the public sector was not regarded as autonomous; it was considered an unavoidable expense for assuring the proper functioning of the market economy. This was so even where the public sector included besides the “military capital” – the transportation system, utilities, and other special industries. All in all, whether more or less extensive, the public sector has always accounted for a part of the national economy.

With respect to public enterprises no two countries are exactly alike, even though the general trend towards increasing government control is visible in all. The United States was (and is) the country least affected by the nationalization of industries. The difference between America and Europe in this respect occasioned the notion “that few European economies – perhaps none – can be called capitalistic in the sense given to that word in the United States and Canada, where non-capitalist elements play only a secondary role.”[19] But even in America the direct utilization of human and material resources by government has grown persistently. Between 1900 and 1949, for instance, while “private employment in the United States doubled the combined employment of state and local government quadrupled, while federal employment increased twelvefold. One out of twenty-four workers was on some government payroll in 1900; the proportion rose to one out of fifteen in 1920, one out of eleven in 1940, one out of eight in 1949. In 1920, one out of every fourteen dollars of capital assets (excluding military equipment) was government property; in 1946 the proportion became one out of four.”[20] The trend towards bigger government continues still. “Whereas in 1929 less than one dollar in ten of national production owed its origin to government purchasing, today about one dollar in five of all goods and services produced is sold to some branch of government.”[21] The growing role of government in the economy is too obvious to be enlarged upon. It is visible not only in the direct employment of labor and capital, but also in the growth of the armed forces, in foreign financial relations, in trade and exchange arrangements, in the public debt and in the fact “that about half of the economists in the United States are on the Federal Payroll.”[22]

Whereas in theory – no matter what the actual practice – government control in authoritarian countries serves the whole of society and not a particular class, in most Western nations, and particularly in the United States, government control is subordinated even in theory to the specific property relations of capitalism and therewith to the interests of big business. What real redistribution of income exists in the United States is to a large extent a shifting of tax-money from non-subsidized to subsidized sections of the economy; taxation and deficit-financing, i.e., deferred taxation, “has been turned into a vehicle for assuring the economic potency of private enterprise.”[23] The economy is thus co-determined by government and big business to such a degree that, for all practical purposes, government is big business and big business government.

Capital concentration has been much aided by government subsidization favoring the big producers which supply the great bulk of government-created demand. “In 1962 just under three-quarters of all prime contracts were let to 100 large corporations. Small businesses, which are defined as those having less than 500 employees, received somewhat less than one-fifth of all prime contracts awarded. Even when allowance is made for the fact that small business receives a substantial number of subcontracts, the extent to which defense work is concentrated in large organizations is pronounced.”[24] In newly-opening spheres of production, enterprises are often launched with government money and supported by steady government contracts and other forms of aid.

American capital has reached a degree of concentration which makes the existence of the whole of the economy dependent on the preservation and growth of its big corporations. An economic failure of this highly concentrated capital, which employs the great bulk of the laboring population, would be nothing short of national disaster. Its power is enormous; but if its power were less, or were endangered, it would have to be shored-up by the government to avoid economic collapse. Tax money is poured into private industry through government contracts and private enterprise becomes “in its most significant phase – the phase of capital formation – state-financed enterprise.”[25] It has been estimated, for example, that “tax money poured annually since the end of World War II into private industry, that is, defense contracts, is about equal to the amount of net capital formation in all United States industry, as represented by the rate of United States annual industrial expansion.”[26]

Governments, of course, cannot subsidize anything; they can only see to it that one part of the economy subsidizes another part, that socially-available profits are distributed in such a manner as to enable the prevailing society to function. In a way this has always been the case, through the workings of competition as well as through monopolization. But what previously occurred “automatically” through the market mechanism is now, under conditions of capital stagnation, done consciously by way of government-created demand, which is only another name for subsidization.

It is then not surprising to find economists lumping together market-determined and government-induced production to deduce from this total production the state of the economy, as if the mere quantity of production and not its profitability was indicative of the good or bad health of the national economy. Still, the rising national product must find a definite limitation in the associated relative decline of non-subsidized capital and in the further course of capital concentration.

There is more outright nationalization of industries and services in Western Europe, although with wide variations between different countries and with regard to industries affected. The main industries either completely or partially under government control are railways, coal, oil, utilities, and metals. In Austria, basic industries are a complete government monopoly due to institutional changes brought about by the Russian occupation following the Second World War. With the exception of Switzerland, all Central Banks are government controlled, and so are most of the national railways. In some nations, Norway for instance, substantial state participation in private companies takes the place of outright government ownership. But nationalized industries play a substantial role in all West-European countries. In 1955, for example, “public treasuries of various sorts in Western Europe spent an estimated $62 billion (excluding operating expenditures and publicly owned corporations. This represented 28 per cent of Western Europe’s total gross national product, which approached $221 billion that year.”[27]

A “mixed economy” can be a mixture in which private capital dominates, as presently in Western Europe and, to a greater extent, in the United States. Or it can be one in which state-ownership is predominant, such as existed in the early years of the Bolshevik regime in Russia. State ownership and private enterprise may co-exist without encroaching upon each other, as has been more or less true in many nations for some time. In this case, the operational sphere of private capital production by-passes that of government production; it merely operates, so to speak, in a smaller economic world. Where government production monopolizes certain industries there is no competition between private and government production. This may affect private enterprise favorably or unfavorably, as government pricing policies may be designed to provide a medium of taxation and to support a policy of selective subsidization.

With a smaller economic world to operate in, private capital will reach its limits of expansion sooner than otherwise. It must thus try to hold the extension of government-controlled production and capital in check. Governments, representing the interests of private capital, will on their own accord check their extensions into the sphere of private production. The choice of monetary and fiscal policies and the emphasis on waste-production illustrate the efforts of governments to avoid the nationalization of industries. Where nationalization has occurred, it has been largely the result of political activities on the part of movements opposed to private enterprise or to its monopolistic practices. In France, enterprises were nationalized after the Second World War because their owners had been collaborating with the enemy. The British Labour Party, reaching the government after the war, nationalized the coal and transport industries, not so much because nationalization was part of the Party program, but because these industries found themselves in a moribund state. Whatever the reasons for a particular act of nationalization, the mixed economy was conceived not as a partial transformation of private enterprise into state-enterprise, but as a full employment program realized through government initiative in order to increase production within the private-enterprise system. Aside from the degree necessary to any capitalistic system, nationalization of industry was not the Keynesian but a socialist program, which considered all partial nationalizations as so many steps towards total nationalization.

The mixed economy in the Keynesian sense is seen as an alternative to socialization (or nationalization), and as the only alternative. Progressive nationalization of capital implies a steady decline of private enterprise and this decline, in turn, speeds up the nationalization process. With state-ownership the dominant form of ownership, private enterprise would slowly disappear, not only by way of competition but also through political activities issuing from the state-capitalist part of the economy and the new institutions connected with it. To avoid the transformation of private capital production into state-capitalism, the state-controlled part of the national economy must be kept at a minimum. It is for this reason that social movements which lost their early socialist inclinations, such as the British Labour Party, avoid the comprehensive nationalization of industry even when it appears possible. The nationalization goal of the Labour Party, for instance, was set at between 20 and 30 per cent of all industry. It was not carried out to that extent. “The nationalized sector of the British economy,” it was, said, “will always remain a minority of the whole. Total national ownership of all the means of production and distribution once advocated in most early socialist doctrines does not come within the modern socialist concept as it exists in Britain.”[28]

Because socialism is no longer the goal of “socialist organizations,” these organizations have no choice but to accept the Keynesian concept of the mixed economy as their own. The mixed economy appears now as an expression of the evolution from laissez-faire capitalism to the modern welfare-state, and the latter as the realization of the modern concept of socialism, i.e., socialism based on private property or, in crude American terms, “people’s capitalism.” Insofar as greater equality of incomes is thought desirable and necessary for full employment, monetary and fiscal manipulations are regarded as sufficient to bring this about. The program depends upon the character of the government, for which reason it is necessary to have a “socialist government” to assure the effective working of “modern private-property socialism.”

Like the British Labour Party, all Western socialist parties no longer attach importance to public ownership and operation of industry. Such parties in West Germany, France, and Italy have even programmatically dropped their calls for public ownership of the means of production. In the Scandinavian countries, they are content with the prevailing partnership between government and private enterprise. Except as an empty Communist Party slogan, nationalization plays no political role in the Netherlands, Belgium, Switzerland, and so forth. The problem of ownership is seen as irrelevant with regard to social and economic needs, which now appear solvable within the status quo of the mixed economy. Of course, this ruling attitude has its cause not only in the changed character of the labor movement, whose very existence is bound to the status quo, but also to the relatively prosperous conditions due to the reconstruction of the war-devastated European economies.

“By 1955 Western Europe was spending 45 billion on investments – more than one-fifth of its total gross product; two thirds of it in plant, machinery and equipment. During the period 1949- 1959 fixed capital formation increased more than national product. In 1959 Gross National Product was 48 per cent above the 1949- 1959 average, and fixed capital formation 69 per cent higher.”[29] Conditions of economic expansion will not call forth demands for nationalization; nationalization is an answer to the failure, not the success, of capitalism, even if this success is temporary and partly illusory.

A great part of this investment was a result of political decisions rather than individual initiative. Governments arranged for compulsory, or near-compulsory, institutional savings, and for the retention of a large share of corporate profits for reinvestment purposes. Expansion was achieved by way of deficit-financing and “under almost universal inflation to a degree never before so widely experienced in peace time. Prices in Western Europe rose by 66 per cent between 1947 and 1957. This was a compound rate of increase of more than 5 per cent per year, a rate roughly equal to the yield of government bonds (before taxes).” [30] These methods made investments possible by cutting down consumption in favor of “savings,” i.e., capital accumulation. Aided by government, capital could now expand as in times of old.

Not to be misled by this success story, it must be pointed out that the forced capitalization of Western Europe was not the result of the application of “modern economics.” Rather, the “application” worked in this particular way because of the conditions in which Europe found herself after the war. The enormous destruction of capital, not only in value terms but in material, physical terms, and the obsolescence of a large part of the surviving productive apparatus, allowed for – and demanded – a rapid capital formation to avoid a total collapse of the private property system. Both capital and labor accepted the demands of government not to work for more consumption but for capital formation. And, as in times past, more consumption became a by-product of the accelerated capital expansion.

The same “economics” did not have the same results in the United States. At the end of World War II America’s productive capacity exceeded the available market demand. While the European economies began again to accumulate capital at the expense of consumption, a further rapid expansion of the American economy would have led only to more unused capacity. Not even the peace-time simulation of war-time conditions by way of defense expenditures enabled America’s productive resources to be fully used. Where European governments applied fiscal and monetary policies to further the accumulation of productive capital, the United States used these policies to subsidize waste production. Real capitalistic prosperity depends on an accelerated rate of capital formation, for it is only such a rate which creates an aggregate market demand large enough to employ the productive resources. “A review of the principal components of aggregate demand strongly suggests that the sluggishness of business fixed investments was at the heart of the demand lag after 1957.”[31] This sluggishness reflects a low rate of profit relative to the stock of fixed capital and inventories. “The profit rate in the United States fell steadily in the 1950s. There was not even an upward trend in the absolute level of profits in spite of a cumulative manufacturing investment of about $125 billion over the decade.”[32] In contrast, in Germany, “the absolute level of profits rose by 1960 to about three and a half times the 1950 level”; and the return on capital during the same period “averaged in Germany about 28 per cent and in the United States about 18 per cent.”[33]

Government interventions in the American economy did not break the relative stagnation of capital formation. In despair, a symposium of twenty prominent American economists called for a “new Keynes.”[34] The standard Keynesian categories were now recognized as “inadequate to diagnose the trends in the economy since the mid-fifties. What is needed is a meta-Keynesian approach.”[35] With the demand for business capital in a long-term relative decline, the question was no longer, it was said, “whether fiscal policy can offset a temporary gap in demand, but how we can restructure our economy so that new permanent sources of demand may be found.”[36] Although the answer to the query should be obvious, with two-thirds of the world population near or at starvation, and with the underdeveloped countries’ urgent need for all kinds of means of production to overcome their miserable conditions, the “obvious” is not an answer, not even for alleviating misery in the developed nations where tens of millions of people cannot satisfy their most immediate needs. What prosperity there has been has been largely a by-product of the Cold War, which “has not proved that recessions can be avoided except by armaments expenditures, and since to justify armaments international tension has to be kept up, it appears that the cure is a good deal worse than the disease.”[37]

1. J. M. Clark, Alternative to Serfdom, New York, 1960, p. 98

2. Ibid.

3. K. K. Kurihara, The Keynesian Theory of Economic Development, New York, 1959, p. 20.

4. J. McDonald, Fortune, New York, December 1950, p. 134.

5. R. L. Heilbroner, The Worldly Philosophers, New York, 1953, p. 159.

6. J. Platnenatz, German Marxism and Russian Communism, London, 1954, p. 303.

7. J. Strachey, Contemporary Capitalism, New York, 1956, p. 312.

8. A. L. Rowse, Mr. Keynes and the Labour Movement, London, 1936, p. 12.

9. The General Theory, p. 379.

10. Ibid.

11. H. G. Moulton, The Formation of Capital, Washington, 1935, p. 65.

12. America’s Stake in International Investments, The Brookings Institution, Washington, D.C., 1938, p. 375.

13. R. R. Doane, The Measurement of American Wealth, New York, 1933, p. 16.

14. According to S. Kuznets the ratio of net investments to national income in the United States rose until the turn of the century and declined from then on to nearly nothing in the 1929-1938 period.

Net Capital Formation in Percentages of National Income (1929 Prices)
Decade Net Capital Formation Decade Net Capital Formation
1869-78 13.7 1904-13 13.1
1874-83 14.4 1909-18 13.0
1879-88 14.6 1914-23 11.4
1884-93 16.1 1919-28 10.2
1889-98 16.2 1924-33 6.0
1894-03 14.8 1929-38 1.4
1899-08 13.6

(National Income – A Summary of Findings National Bureau of Economics Research, New York, 1946, p. 53.)

15. The Economist, London, February 11, 1950.

16. B. G. Hickman, Investment Demand and U.S. Economic Growth, Washington, 1965, p. 123.

17. Ibid., p. 135.

18. A. F. Burns, The New York Times, October 19, 1954.

19. M. Salvadori, Europe’s Needs and Resources, New York, 1961, p. 737

20. A. F. Burns, The Frontiers of Economic Knowledge, Princeton, 1954, p. 40.

21. R. L. Heilbroner, The Making of Economic Society, Englewood Cliffs, 1962, p. 175.

22. The New York Times, February 25, 1953.

23. P. K. Crosser, State Capitalism in the Economy of the United States, New York, 1960, p. 97.

24. E. Ginzberg, The Pluralistic Economy, New York, 1965, p. 151.

25. P. K. Crosser, State Capitalism in the United States, p. 28.

26. Ibid., p. 27.

27. J. O. Coppeck, Europe’s Needs and Resources, p. 404.

28. F. Williams, Socialist Britain, New York, 1949, p. 91.

29. J. O. Coppck, Europe’s Needs and Resources, p. 450.

30. Ibid., p. 461.

31. B. G. Hickman, Investment Demand and U.S. Economic Growth, p. 9.

32. A. Maddison, Economic Growth in the West, New York, 1964, p. 54.

33. ibid

34. The New Republic, October 20, 1962.

35. B. Caplan and H. Malmgreen “More than Keynes,” The New Republic December 1, 1962.

36. Ibid.

37. J. Robinson, Latter Day Capitalism, New Left Review, London, July-August 1962, p. 43.