Forgetting the Lessons of the Great Depression

Abstract

Gordon, Robert Aaron. Business Fluctuations, Second Edition, New York: Harper & Brothers, 1961. Guthrie, William, and Vincent J. Tarascio. on Economic Growth, Stagnation, and Structural Change: New Light on a 55-Year Controversy, History of Political Economy, 24.2 (Summer 1992), 381-412. Guttmann, Robert. Stagflation and Credit-Money in the U.S.A., British Review of Economic Issues, 6.15 (Autumn 1984), 79-119. Hansen, Alvin H. Full Recovery or Stagnation?, New York: Norton, 1938. I. Introduction With the recent recession and weak recovery of the U.S. economy, mainstream economics and policy have reached a state of bankruptcy and confusion unparalleled since the early-1930s. Working-class living standards have been in decline for a decade and a half, yet business leaders and policymakers continue to call for sacrifice and competitiveness as the way out of the long-run malaise. Rather than bringing a peace dividend, the end of the Cold War poses the threat of an even worse unemployment crisis, as U.S capitalism appears unable to redeploy resources from destructive to constructive uses. Meanwhile the ecological crisis continues to unfold, the medical, education, and transportation systems deteriorate, and unemployment of workers and productive capacity grows while the employed work harder and longer to sustain ecologically and socially irrational modes of private consumption. Hundreds of billions of dollars are spent on high-tech weaponry, financial speculation, advertising, and other unproductive activities in the cultural wasteland of U.S. capitalism, yet we are told that we cannot afford the minimum of socialized health care, vacation times, and public transportation systems available in other advanced capitalist countries. In this context a Democratic president, while dancing to the tunes of Wall Street, the corporate media and the military-industrial complex, claims as his main policy success the refinancing of mortgages by the middle class. How did this situation come about, over 50 years after the Keynesian revolution? The suggestion here is that mainstream economics and policy are unable to come to grips with the basic causes of our current socio-economic problems because of a lack of historical memory. The questions raised by Keynes and other economists in the 1930s led to a debate over the possibility of long-run stagnation in the mature capitalist economy. But this stagnation debate, far from being further developed and applied, was forgotten or consciously abandoned as Keynes' analysis was vitiated and submerged under the synthesis during the long post-World War II boom of the global capitalist economy. The issues raised in the 1930s, concerning the ultimate goals of economic activity, were shunted aside in favor of a technocratic Keynesianism operating in the service of corporate capital and the military-industrial complex. Since Neoclassical-Keynesian economics had no connection with the earlier stagnation debate, it was ill-equipped to confront the subsequent crisis and resurgence of fundamentalist Neoclassical perspectives (Supply-Side economics and the New Classical school) without resorting to pre-Keynesian explanations of crisis-phenomena like involuntary unemployment. Sections II and III survey the stagnation debate of the 1930s and the mainstream abandonment of long-run stagnation issues during and after World War II. Section IV illustrates the historical vacuum in current economic theory via a critical review of Peter Temin's recent book, Lessons from the Great Depression (Temin, 1990). The historical default of mainstream theory and policy is then contrasted with one major tradition that has consistently built upon and developed the historical-systemic questions debated in the 1930s: the Neo-Marxian theory of overaccumulation and stagnation. Section V introduces this alternative perspective and applies it to the inter-war era and the current conjuncture. …