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Reconstituted Socialist Party of Great Britain (1991) - Article - Crisis and Austerity Economics

AUSTERITY (2013) by Professor Mark Blyth is a useful book even though it is written by a convinced Keynesian economist.

Professor Blyth begins with the writings of Locke (SECOND TREATISE OF GOVERNMENT, 1690), David Hume (ESSAYS, MORAL AND LITERARY, OF PUBLIC CREDIT, II. IX. 5) and Adam Smith (THE WEALTH OF NATIONS, 1776), and traces the historical development of the economic doctrine known as ‘economic liberalism’ Justifying capitalism and the policy scripts written by financiers and economists for politicians and governments to address economic problems.

In a post-script to the book, Professor Blyth relates a story of the “pre-ideological thinking” of Francois Hollande, President of France, who justified French budget cutbacks in January 2014 by invoking Jean Baptiste Say’s erroneous ‘truism’ that supply creates its own demand (p. 272).

Professor Blyth rightly considers Hollande’s economic policy as an example of the “bankruptcy of a political class” Here in Hollande we have a politician who invokes a failed 211 year-old economic doctrine without any historical reflection while still maintaining he is a “socialist”.

Well, it was Marx who refuted the so-called “Say’s Law” in the third chapter of CAPITAL, volume 1 (Penguin 1990). It was in a section of the book where Marx was dealing with money or the circulation of commodities in the context of simple commodity production.

J. B. Say argued that a serious depression should not take place because "every seller brings a buyer to market": by which he meant that every producer of commodities who sells his products then has the cash with which he can at once buy other products and so keep industry busy.

Marx refuted Say’s argument. He agreed, superficially, that the sellers have the cash with which they can go at once out and buy some other commodity, but he pointed out that:

“…no one directly needs to purchase because he has just sold” (pp 208-209).

Sellers may choose not to do so and if the interval of time between the sale and the purchase is too great the result is “…a crisis” (p209).

The question to be answered then is why this failure to buy commodities takes place.

Say had disregarded the fact that the part of capitalist expenditure which is investment (as distinct from the capitalists' purchase of necessities and luxuries for personal consumption) has as its sole purpose making a profit, and if there is no prospect that a profit can be made the capitalist refrains from buying although he has the means to buy.

When the 2008 economic crisis passed into a trade depression, the media pointed to numerous companies that had “Cash Mountains” of millions of dollars. In the US, for example, the mountain of cash in corporate vaults climbed to a record-high of $1.4 trillion in 2014 (CNN NEWS March 20th 2015)

Instead of using this capital to produce more commodities these companies preferred to invest abroad, lend money to banks and the government (some cash was returned to shareholders). Also, at such times, many companies take over other firms – the strong kill the weak.

Using their surplus cash to provide jobs for the unemployed is not what the capitalists are in business to do. When the economic conditions improved and there were prospects of making a profit, companies were only too willing to invest.

Some writers, including Major Douglas and J.M. Keynes, have argued that there is an overall shortage of purchasing power in capitalist society and that this is the cause of crises and depressions. Douglas proposed that the government should distribute to the population a cash “national dividend” to correct the supposed shortage.

Keynes maintained that this overall shortage of purchasing power made it impossible to sell all the products of industry in the home market, hence the pressure to sell abroad. And, that if home demand was increased by the adoption of his proposals, pressure to export would disappear and thus remove a major cause of war.

Of course the poor lack purchasing power, but the poor and rich combined always have the purchasing power to buy all the products. However, it must be remembered that capitalist production produces only for profit and the amount of commodities produced at any given time do not correspond with the real needs of the working class rationed, as they are, by the wages system.

The periodic failure of some products of industry to find buyers, which produces a crisis, is not due to any overall shortage of purchasing power but it is due to the anarchy of commodity production; that is the contradictions and economic laws that bear on the movement of capital from one trade cycle to the next.

Austerity politics is what the working class get in an economic crisis and subsequent trade depression. Government cuts in “welfare” payments, budget, cuts to the NHS, wages pegged at 1% for central and local government workers and so on. Workers do not have to put up with this politics; they can take conscious and political action as socialists to democratically replace capitalism with socialism.

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