Keynes's "vision" of the appropriate relation between economy and society

In standard economic theory, we formally (in general equilibrium models) or informally (in partial equilibrium models assumed to be embedded in general equilibrium systems) assume we are representing a marketplace in which non-cooperating, isolated individuals and firms come together to buy and sell goods and services.

The vision of society embedded in standard mainstream models of market economies is thus one in which individuals have no connection with one another except through what Marx referred to as a "cash nexus." Everyone looks out only for themselves, while the market system determines economic and social outcomes. It is reasonable to assume that the "winners" in such an economy - those with the greatest wealth - would have a disproportionate influence on the character of the society

Relevance of Keynes's work today 367 in which it was embedded and would be capable of transmitting this power intergenerationally. The economy-society nexus would thus tend to be dominated by the character of the "free-market" capitalist economy. Of course, most governments and other non-market institutions in real- world capitalist economies interfere in market activities in many ways, but they generally do not do so in ways that knowingly threaten the economic, political, and ideological dominance of the capitalist system. Countries committed to strong forms of social democracy are an exception to the rule.

As I noted in several places in this book, the assumption set required to generate Pareto-optimal general equilibrium describes an absurdly unreal­istic economy that could not possibly exist in the real world. What, then, was the purpose of devoting so much professional economic talent to the creation of such a theory? Keynes believed the answer to this question was largely ideological: orthodox theory supported the domination of capit­alism and capitalists over society.

That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, and the attempt to change such things as likely on the whole to do more harm than good, commended it to authority. That it afforded a measure of justifica­tion to the free activities of the individual capitalist, attracted to it the support of the dominant social forces behind authority.

(CW 7, pp. 32-33)

There is an alternative way to structure the relation between economy and society: let society dominate the society-economy nexus. Start from assumptions about what kind of society the citizens of a country would like to have, as determined through effective democratic processes, and then ask what kinds of economic institutions and policies would be con­sistent with and supportive of the reproduction of the values and priorities of the "good society" or of "economic and social justice." For example, in their teachings about the relation between capitalism and society and com­munity in papal encyclicals, the Catholic Church has always been deeply suspicious of the compatibility of capitalism with Christian commitments to social and economic justice "All economic institutions must support the bonds of community and solidarity that are essential to the dignity of persons. Wherever our economic arrangements fail to conform to the demands of human dignity lived in community, they must be rejected" (National Conference of Catholic Bishops 1986, p. 15).

The reading I have done by and about Keynes in the process of working on this book has led me to the conclusion that in the troubled interwar period Keynes clarified his ideas about what constituted a "good society"; came to believe that British capitalism was inconsistent with the requirements of a "good society"; rejected the then-current cap­italist domination of economy over society; and eventually developed a new Liberal Socialist model of political economy in which societal values and imperatives expressed through democratic processes regulated and constrained capitalist markets more than the other way around. Liberal Socialism was Keynes's particular version of social democracy. I would argue that the dominance of society over capitalism in Keynes's vision of Liberal Socialism was greater than in the postwar social democracies of Europe, especially as we moved from the Golden Age to the global neo­liberal regime.

Keynes's new model of political economy has been discussed at length throughout this book. The core economic objectives are clear: sustained full employment and job security for everyone who wishes to work; a rapid decline in the inequality of the distribution of income and wealth; the "euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity value of capital" (CW 7, p. 376); rapidly rising income per capita; and the creation of a comprehensive and generous social welfare system. As stressed throughout this book, to be sustainable, Liberal Socialism would require strict capital controls, managed trade, and various indus­trial policies.

The major policy tool required to accomplish this transition from laissez-faire capitalism to Liberal Socialism, as Keynes stressed in 1942, was societal control over two-thirds to three-quarters of all large-scale cap­ital investment. Private capitalists operating in private markets would no longer determine the basic trajectory and character of the economy and society over the long run. That would be done primarily by state eco­nomic planners and executives in public corporations under the general guidance of the democratic process operating through a Board of National Investment or, later, through the Treasury. Criteria for project selection were not limited to the expected rates of monetary return. They included quality-of-life issues such as contributions to arts, culture, and education, priorities for working-class housing, and environmental concerns.

I stress the importance of the society-economy nexus here in part because, over the decades since WWII, and especially since the early 1980s, capitalism has evolved into a globally integrated neoliberal regime in which the dictates of capitalist markets and the interests of the rich and politically powerful increasingly dominate both the economy and society almost everywhere. In my opinion, the world is in desperate need of a peaceful revolution in which progressive democratic political processes empower society to take control of economic systems and transform them

Relevance of Keynes's work today 369 in the spirit of Keynes's Liberal Socialism, though not necessarily in its particular institutions and policies.¹