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Satiation or Two Limits of Growth: John Meynard Keynes

"The first great economic crisis of the 21st century marks the end of the failed political-economic experiment.. The past 30 years of redistribution from bottom to top were a glistening epoch for the owners of capital.. Keynes understood this future without growth as a success of humanity in freeing itself from poverty and the arduous burden of work.."

John Maynard Keynes thought beyond the little distress of the moment

By Karl Georg Zinn

[This article published in: Le Monde diplomatique 7/10/2009 is translated from the German on the World Wide Web,  http://www.monde-diplomatique.de/pm/2009/07/10.mondeText1.artikel,a0055.idx,12.]

The first great economic crisis of the 21st century marks the end of a failed economic-political experiment. Seen superficially, this crisis appears as a financial crisis triggering the collapse of real economic growth. Actually we face the beginning of a double crisis whose causes go back to the 1970s.

At that time, the high growth rates of the time between 1950 and 1973 were desired. Reaching full employment sounded like a hollow promise. In the three decades, economic policy tried to support growth through market-radical Neo-Laissez faire and an unparalleled global credit expansion. However the hopes for overcoming mass unemployment this way have not been fulfilled.

The error was in the basic misjudgment of the growth possibilities of highly developed capitalist economies. For these economies, the growth paradigm was already antiquated in the 1970s. Two principle reasons can be cited for this: the "ecological" according to which no unlimited growth is possible on the limited planet earth [1] and the theory of endogenous growth weakening going back to John Maynard Keynes (1883-1946).

This long-term theory - and prognosis - was largely repressed after 1945 in practical and economic debates. Discovering the "hidden" Keynes is worthwhile because he diagnosed the permanent growth weakening far in advance. His prognoses supplemented by political-economic recommendations are burning again today.

Focus on the theory of endogenous growth weakening is very important since most economists still cling to the idea that the only possible way out of the crisis is through growth stimulation. No one can escape the fact that a considerable part of the relatively low economic growth of the past decades was only a kind of sham boom first made possible through the finance capitalist indebtedness orgy. The excessive credit expansion among investors and consumers drove the over-accumulation in very new dimensions. Therefore the reduction of immense over-capacities is now unavoidable - along with destruction of vast practical capital (Sachkapital).

There is an alternative to this erroneous political way of growth. But it is still ignored. Thus chances are missed to do something against the far more threatening ecological crisis - compared with the current economic crisis. Once again overcoming the ecological problems is subordinated to economic interests. The ecological time bomb is not deactivated because the relatively small distress of the moment can repress the much greater future distress.

The same politicians, bankers and managers together with the hosts of top-salaried lobbyists and think-tanks that speeded up the radical liberalization on national and international planes since the 1980s seem to have done an about-face. However the appearance is deceiving. The economic elites have not discovered the common good that they would help along with genuine reforms. Why is this? The past 30 years of redistribution from bottom to top based on the global expansion of capitalist practices and weakening of the working populations and their union representatives occurred in a glistening epoch for the owners of capital and their clientele. This should continue for as long as possible - despite the great crisis. To that end, the capitalist economy needs the state again today to socialize losses and convince voting citizens that everything only happens to their best interest.

In the past, the state was not completely passive. Without the state, the "deregulations" of the last 30 years could not have happened. All the deregulations, privatizations, flexible arrangements and as a result extreme concentration of wealth at the top of the distribution pyramid were only possible thanks to the money function of politicians. Effective ideology work was and is always necessary to enforce such a policy direction against the large majority of workers. Neoliberalism was propagated for years. Now what the English economist Jean Robinson described as "bastard Keynesianism" is pulled out again in the time of crisis. What the media and political propagandists present as Keynesianism is a half-truth. On one hand, neither the Keynesian analysis of the long-term development of capitalism nor his prognosis of decreasing growth rates is thematicized or taken up in economic policy. On the other hand, the bastard Keynesians of our days obviously do not understand the path-dependence of the present crisis.

Only a few economists compare the Great Depression and the present crisis. What they discover simply does not fit upbeat optimism and the tranquilizing rhetoric of the apologists of "our" production relations. For example, the economists Barry Eichengreen and Kevin H. O'Rourke think the present crisis will have deeper revolutionary effects than the depression after 1929. [2] Hardly anyone in the political leadership class and the mass media want to know anything of these diagnoses. They would also be bad for transfiguring the crisis as a "challenge and chance" and veiling the chronic sickness of current western capitalism. The protestations and solemn declarations that people will emerge "strengthened" from the crisis are empty phrases but ideologically useful because they legitimate the bailout actions in favor of capital over against those who must pay these bills at the end - working people and the great multitude of taxpayers. However one covers up the socialization of losses, this value creation realized through additional human work must be rewarded. [3]

Ideology only operates as far as it is believed and accepted by the addressants. That is the reason for the constant invocation of a "fundamental" economic-political turn from the neoliberal market theology to the regulating intervention state and the opportunist recourse to the vulgar-Keynesianism from textbooks of the time before the neoliberalist interregnum.

Still the return of state monopoly capitalism under the trademark "Keynesianism" is a labeling fraud. The current credit-financed state spending is described as Keynesian because Keynes recommended such measures for restraining or overcoming normal economic cycles that regularly appeared since the beginning of the 19th century. But such "economic programs" cannot accomplish much against permanent growth weaknesses and the mass unemployment going along with it. Therefore Keynes proposed very different measures for such situations, which do not turn up in the current Keynes-gossip.

Like other ideologies, the neoliberal ideology is also prone to error. One basic mistake made by the coalition of cabinets and capital in its "crisis management" lies in the interpretation of the crisis as a "pure" financial crisis. This judgment was very widespread in Europe (unlike China, Japan and the United States) where it is held most stubbornly. We actually face a "double crisis," a financial crisis and a crisis of the real economy (together with real estate).

Thus the real economic crisis cannot only be seen as a product of the financial crisis. Since the beginning of the 1980s, most highly developed capitalist countries had weak growth rates and were unable to even approximately restore full employment. The great national economies of the European Union have not successfully broken the downward trend of actual employment. [4] On account of their misjudgment, EU representatives - with the German and French governments leading the way - resisted an internationally coordinated economic program at the London World Financial summit on April 2, 2009, a coordinated action of industrial countries in favor of a real economic expansion policy.

When I speak of the "hidden Keynes," I mean his theoretically substantiated prognosis confirmed by the actual history that developed capitalist national economies couldn't grow indefinitely.

This leads to the logical insight that the employment problem must be solved without recourse to growth. How could this important insight remain concealed? The people who speak so much about Keynesianism should know something about their "century economist" John Maynard Keynes and his work.

Keynes' main work "General Theory of Employment, Interests and Money" was interpreted by his countryman John Richard Kicks a year later in a short essay "Mr. Keynes and the Classics" [5] - with far-reaching consequences. The reception of "General Theory" and the textbook summaries mainly reproduced the practical version of Hicks - a combination of Keynes and classical equilibrium theory - and diverged from the original. This thinned "Keynesianism" entered economic theory as the "neoclassical synthesis." [6]

Since the end of the 1920s, Keynes was occupied with the question how continuous technical progress and rising work productivity could increase the growth of real economies and social prosperity. In his 1930 essay "Economic Possibilities for Our Grandchildren" [7], Keynes ventured a prediction on a possible constellation in 2030 with two reservations. He did not see any great wars or any massive population growth.

Keynes saw rising average income as an essential prerequisite for the "Golden Age" - thanks to increasing productivity growth. He was sure per-capita income would multiply up to 2030. His grandchildren must have the possibility of conquering the "old scarcity problem of humanity," namely lack of vital necessities or poverty. In addition, working hours could be massively reduced so people could devote their life more to the beautiful intellectual side of life and leisure. [8]

Keynes' future optimism was not shaken even after 1930 as some texts from the time of the Great Depression show. In the final chapter of his "General Theory," he explained what could and must happen to make possible a good life for all people. These social- and moral-philosophical reflections had no place in the limited Keynes reception by Hicks and his disciples. These reflections mirror an economics that strives to emulate the natural science ideal and sees itself as value-neutral. There is no excuse for ignorance about Keynes' statements on long-term growth of highly developed capitalist economies.

In May 1943 at the request of the British government, Keynes gave his evaluation of the likely jobs development after the end of the war. [9] On the basis of his reflections unfolded in his 1936 "General Theory," he argued that (voluntary) savings would increase with growing wealth since these sums will not be absorbed any more by (voluntary) investments. Thus a gap results between production capacity (supply) and demand that can only be closed in the long run through state interventions.

For the postwar time, Keynes predicted three different growth phases. The first is marked by the catch-up need of investors and consumers. The changeover to peace production and reconstruction require enormous investments. A strong tendency to demand inflation results. Therefore a promotion of savings or consumption restraint is commanded. In this phase, high growth rates and rising employment can be expected.

In the second phase, Keynes saw the inflation pressure diminishing while growth and employment could stay at a high level. Economic swings can be countered with anti-cyclical fiscal policy. In a downswing, credit-financed state spending increases and in the upswing a repayment of the credits is possible from rising tax revenues. In this way, a full employment can be guaranteed over several years.

In the third phase, a continuous growth weakening will occur since no stable full employment can be realized any more (saturation of investment). On the high-income level, the savings would no longer be completely absorbed by investments. As a result, production and national income will permanently fall below the level necessary for full employment. With continuing advances in productivity (through rationalization), unemployment will climb insofar as no counter-measures are taken.

The constellation of (very) low growth characteristic for the third phase is described in the literature as stagnation or secular stagnation. [10] However Keynes spoke of "satiation of investment" ultimately originating from decreasing consumer demand. The French sociologist Jean Fourastie reached basically the same conclusion. In the long term, the share of industrial production in aggregate economic value creation will decrease because of slackening consumer desires - in favor of an expansion of the service sector. [11] Like Fourastie, Keynes understood this "future without growth" as an "achievement of humanity in freeing itself from poverty and the arduous burden of work.

The future vision of the two "stagnation theoreticians" can be summarized in the postulate: "full employment and prosperity with decreasing and ultimately non-existent growth." Fourastie wrongly assumed that services would not be rationalized since all job losses in industry (as previously in the case of agriculture) would be checked by the growth of the service branch. Keynes saw the future more realistically and did not expect the market mechanism to ensure adequate employment without state interventions.


To ensure full employment despite decreasing growth, economic policy must act in three directions. Firstly, it must provide an even income distribution to raise mass consumption and satisfy "sensible" consumer needs. Thus Keynes was not afraid of distinguishing between sensible and unnecessary consumerist consumption. Secondly, the state share must be raised to make available public goods to an extent appropriate to society's historical and cultural state of development. [12]

The third postulate is connected with Keynes' essential growth skepticism. Since he did not think the employment problem could be solved by permanent growth (increased mass consumption via political distribution and/or permanently increased state spending), he recommended reduced working hours. He had in mind only "normal" reductions of working hours, not the indirect reduction of working hours because of higher life expectancy. However thanks to his theory, Keynes predicted socio-economic constellations during the Second World War with which all rich countries must fight. No other economist and no other political-economic school did that at that time.

Unlimited economic growth is impossible. This is a trivial statement but growth is still on the political and economic agenda of all governments. The stagnation thesis remains taboo. [13]

Did Keynes also contribute to modern "ecological" growth criticism? Environmental problems and finite resources did not play any role in the prognoses of Keynes and Fourastie. However their description of the stagnation mechanism inherent in industrial national economies neutralized the growth paradigm and also provided a supplementary argument for ecological growth critics. Whether capitalism is possible without growth or accumulation is not answered clearly. Nevertheless both the Marxist capitalism criticism and pro-capitalist economic theory assume the system cannot survive without growth (accumulation). That is why the capitalist power elites categorically reject all growth criticism and at most use superficial eco-rhetoric Discussions with scholars offering pessimistic forecasts about further growth are ignored. [14]

The ecologically substantiated - more or less apocalyptic - growth skepticism is far more momentous than the skepticism of the "stagnation theoreticians." The latter did not derive catastrophe scenarios from the expected growth weakening. When they described continuing mass unemployment and increasing social poverty as catastrophes, they implicitly depicted present capitalism as catastrophic. Compared to the ecological growth problematic and the foreseeable dangers for our planet and its inhabitants, the current economic crisis seems almost harmless. The desperate efforts of economic policy to grapple with problems only through more growth are by no means perfectly safe. While this cannot succeed or can only inadequately succeed, precious time is wasted. Instead of using the crisis to initiate an essential system reform, the opposite is attempted, namely restoring the status quo ante.

Presumably the current crisis is only the prelude to a global transformation of capitalism. The preeminence of the West has long disappeared and will end in the course of this century. The dialectic of globalization accelerates East Asia's technical-economic resurgence. Thus western capitalist initiators - especially the US with its famous "Washington Consensus" - face a dilemma: either continue the de-industrialization of the West and the chronic crisis or the West finally begins to redesign its economic system and seeks solutions that function without economic growth.

Whether and how such an attempt will be compatible with capitalist conditions must remain undecided. In any case, it will be a different capitalism than the capitalism dominant today. With all the differences from country to country, both a neo-feudalist regime and a socialist way are conceivable. In the US and Central European countries, an increasing inequality of income- and assets-distribution has already occurred during the past decades that was carried out by the rulers and subsequently sanctioned by majorities of voters. To all appearances, the "post-democratic" tendencies [15] of these societies promote the transformation to neo-feudalist conditions.


(1) Donella and Dennis Meadows and Jurgen Randers showed the "natural limits" to growth for the first time. See also Donella Meadows, Jurgen Randers, Dennis Meadows "Limits to Growth. The 30-Year Update," London (Sterling/VA), 2004.

(2) Barry Eichengreen and Kevin H.O'Rourke, "A Tale of Two Depressions," www.VoxEu.org.

(3) "We will not pay for your crisis." ... Workers who ultimately will be presented with the bill produce the surplus value.

(4) Neither the unemployment statistics nor the number of employed persons rightly reflect the real development of employment because they do not bring to light under-employment or lack of jobs (in relation to people seeking work). A halfway reliable quantitative data on employment development over a longer time-period only furnishes the work volumes performed by employed persons. In a trend over several years, work volumes fell in most EU-countries during the last decades. Whether and how the shares of good and bad precarious jobs have changed remains open.

(5) John Richard Hicks, "Mr. Keynes and the Classics. A Suggested Interpretation" in: "Econometrica" Vol. 5, 1937, pp.147-159.

(6) Cf. Karl Georg Zinn, "Reception Gaps of Keynesianism. The Long-Term Perspectives of Keynesian Economics" in: Zinn "The Keynesian Alternative. Contributions on Keynesian Stagnation theory, the Historical Forgetfulness of Economics and the Question of a Leftist Economic Ethics," Hamburg 2008.

(7) John Maynard Keynes, "The Economic Possibilities for our Grandchildren" in: Keynes, "Collected Writings" Vol.9, 1972, pp.321-332 (in Norbert Reuter, "Growth Euphoria and Distribution reality. Economic-Political Models between Yesterday and Tomorrow," 2007.

(8) While these changes were presented as possibilities, some commentators misunderstand them as a kind of status quo prognosis...

(9) John Maynard Keynes, "The Long-Term Problem of Full Employment," in: Keynes, "Collected Writings," Vol.27, 1980.

(10) Cf. Alvin H. Hansen, "The Stagnation Thesis" in: "Readings in Fiscal Policy," London 1955, pp. 540-557. See also www.bookrags.com/biography/alvin-hansen.

(11) Jean Fourastie, "The Great Hope of the Twentieth Century," Koln 1954.

(12) The criticism of the opposition between "private riches and public poverty" formulated by John Kenneth Galbraith in the 1960s follows this line of argumentation. In this case, the "Wagnerian law" named after the German economist Adolf Wagner postulated an expansion of public or state activity to do justice to a community focused on "cultural and welfare goals."

(13) Under the influence of the irrational belief in growth, the stagnation theory was dismissed as theoretically and empirically refuted in the Encyclopedia Britannica and in the Brockhaus Encyclopedia.

(14) Beginning with the 1972 study on the "Limits of Growth"

(15) See Colin Crouch, "Postdemocrazia," 2003

Karl Georg Zinn taught economics from 1970 to 2004 at the University of Aachen, Germany. His main interests were macroeconomics, history of political economy and foreign trade.


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