Wednesday, June 19, 2013
The theoretical foundation for the policy of stimulating the economy by government expenditures (i.e. by "stimulus") is John Maynard Keynes's "General Theory of Employment Interest and Money" (1936).
"Vulgar Marxism," despised by Marxists who actually have read the works of Karl Marx, is Marxism in crassly simplified form, all slogans from "The Communist Manifesto" (45 pages) and no substance from "Das Kapital" (three volumes) -- in short, a kind of Mickey Mouse Marxism.
Vulgar Keynesianism has the same characteristics. It's Keynesian economics as understood by hordes of liberal Democrats who have never read the General Theory. Their central idea, in most cases their only idea, is that government spending runs the economy by creating demand.
One of my spies, who prowls the around the State House collecting information for my column, has done some informal polling to discover how many of Maine's legislators are familiar with the theory in any form.
My source determined that only about a dozen Republicans and seven Democrats even recognized the name. Emily Cain, the minority leader, did not, but she took the trouble to Google the name and reported back that Lord Keynes was the man who brought the Great Depression to an end. He did not, and never claimed to, so she would have been better informed if she had left her laptop un-Googled.
I don't know if Sen. John Piotti is one of the Democrats who knows the name, but I conclude that he may be counted among the Vulgar Keynesians. I came to this conclusion from listening to his comments after Gov. Paul LePage's State of the State address. His reaction to the governor's warning about Maine's over-stressed budget was to advocate selling transportation bonds, reasoning that road and bridge repairs would create jobs.
A letter featured in this newspaper on March 30 provided a version of Keynesian economics that was not so much simplistic as it was primitive. The writer's underlying idea seems to be that in the beginning there was an economy, then a bunch of businessmen and rich folks came along and grabbed more than their fair share. He seemed certain that capitalists don't invest capital in productive enterprises. I quote: "Despite what we have been told by our 'business friendly,' anti-union politicians lately, businesses, large or small, do not create jobs."
This is especially striking in light of the proposal to build a billion-dollar east-west highway across Maine with private capital. Could the writer have been among the two or three dozen Mainers who have never heard of this project?
The letter writer explained that, "Businesses exist to make money. They sell a product or service to make a profit. Employee wages cut into that profit, therefore businesses pay the lowest wages and hire the fewest workers possible."
This, indeed, was at the core of Marx's thesis that the capitalist economy would self-destruct. Old Karl was sure that competition, the energy source for the capitalist economy, would require continuing price reductions and, since labor was the major expense of production, wages would decline until the working class revolted.
Way back in the 1890s, a German Socialist and Marxist revisionist named Eduard Bernstein noticed that this had been happening, He pointed out that the work week had shortened and wages increased. This was a time when the German labor unions were still weak and long before Keynesian theory appeared on the scene.
Marx was not entirely wrong in assuming that capitalist investors would compete by reducing labor costs. What he did not foresee was that they would do this by investing in machines and technology. It requires no foresight today to see this. The evidence is everywhere.
When I worked in a mill yard in the 1950s, the bolter logs went onto trucks with a birch-hook; came off the same way. And when the time came to take the logs off the piles for the saw mill, they came off by hand-and-birch hook.
Look around you today and you see mechanical claws doing the job. In the same way hand-lathes have mostly been automated using compressed air and computers. All such labor-savings devices are the product of investment.
The fact that capitalist investment also creates demand before any government money shows up to stimulate it is always overlooked by the Vulgar Keynesian. Think iPod and go on from there, backwards and forwards.
John Frary, of Farmington, is a retired professor and former Republican candidate for Congress.