What crashed in this crisis is capitalism’s life support system

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I came across this interesting  critique on Jacobinmag of Paul Mattick’s 2011 book, Business As Usual. Jason Schulman, the author of the essay is not at all willing to embrace Mattick’s anti-Keynesian argument, which Schulman explains this way:

“…with Keynesian measures already exhausted, capitalist governments are torn between fears of resistance to austerity measures as the  crisis “plays out” and the dangers of further stimulus spending, leading to disastrously high levels of sovereign debt.”

Schulman continues:

“Those who hope for a Keynesian, government-stimulus-package way out of the crisis are bound to be frustrated by  Mattick’s analysis. Though Keynesian policies saved capitalism from depression in the 1970s, such measures are virtually impossible  for governments to execute today. Keynesians, Mattick claims, have refused to consider the ultimate costs of ever-increasing  government debt, which in the U.S. has risen from $16 billion in 1930 to $12.5 trillion today.”

Is this Mattick’s argument? Does he actually believe Keynesian policies saved capitalism from depression in the 1970s? Well, it really doesn’t matter what he thinks. Keynesian policies did not prevent the depression of the 1970s, which was a replay of the Great Depression of the 1930s. The contraction lasted for ten years — more than twice as long as the Great Depression — and was deeper than even that depression.

Here is a chart of the 15 years leading to the end of the contraction phase of the Great Depression:


US GDP measured in gold 1920 to 1934

And here is a chart of the 15 years leading to the end of the contraction phase of the depression of the 1970s:


US GDP measured in gold 1966 to 1980

Everyone agrees the depression of the 1970s didn’t happen — it was somehow avoided by Keynesian economic policies. The problem with this view is that everyone is wrong – the depression happened but it was masked. How was the depression of the 1970s masked, Schulman offers an explanation:

“As Barry Finger has argued, fiat money—state currency  not pegged to gold or any other currency or basket of currencies—gives Keynesianism much broader sweep…”

The secret of the missing depression of the 1970s is simply that during the Great Depression the currency was debased from gold – a process that was completed in the 1971 breakdown of Bretton Woods. If we use the same measure for both period — gold — the 1970s depression re-appears in the data. Keynesian policies don’t let capitalism avoid depressions, it simply papers over the depression with a slew of counterfeit currency. This is why scholars sense something changed in the economy in the 1970s, but can’t quite describe what it was that changed. Some talk about stagnation, others about the emergence of neoliberalism and financialization, but everyone realizes something happened.

Why is it important to understand that the depression was not avoided in the 1970s but only covered up by counterfeit currency? Because understanding this makes it possible to understand why Keynesian policies cannot work this time. As the chart below shows, the US economy has been in a depression since 2001:


US GDP measured in gold 1995 to 2010

This depression, like the one in the 1970s was masked by counterfeit currency printing of the US government. Only a big problem happened — a problem predicted since 2001 — the Keynesian system of masking depression through counterfeit crashed. It crashed beginning in 2007 with the collapse of the big investment houses on Wall Street. This crash was not just the crash of these banking firms, it was also the crash of the Keynesian system that had allowed Washington to  conceal the depression through currency counterfeiting. People like Jason Schulman, who think the fascist state can return to Keynesian policies to recover from this crisis miss the point:

This is a crisis of Keynesian policy — a crisis of state management of the capitalist mode of production that has been the only thing standing between capitalism and its ultimate extinction for the past 80 years.

Author: Jehu Eaves
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I am a "marxist-in-recovery", which is to say, I am someone trying to recover for myself the essential humanist thought of Karl Marx. I understand his writings as a radical, critical, and determined opposition to all forms of social coercion and "laws" of society, including, but not limited to, Labor, Property and the State -- a decidedly negative critique of present society that offers no vision of what replaces it. My somewhat awkward musings on this can be found at I am also on Twitter @damn_jehu
JehuWhat crashed in this crisis is capitalism’s life support system