andré mommen : the temptation of keynesianism

7/30/2019 Andr Mommen : The Temptation of Keynesianism

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THE TEMPTATION OF KEYNESIANISM?Jen Varga and the Soviet economic science in the

1950s

Andr MOMMEN

Attacking the Citadel:

Making Economics Fit for Purpose

1st World Keynes Conference

Izmir/Turkey

26.-29. June 2013

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Abstract

After Stalins death in 1953, Soviet economists wanted to break with the Stalinist legacy andstarted a debate on the Stalinist thesis of a constantly impoverishing proletariat in thedeveloped capitalist world. Jen Varga (1879-1964) admitted that technological progress

could have a positive effect on a workers family consumption. He argued that there existedas a redistribution of the realised surplus value among the different interest groups and thatstate-monopoly capitalism regulated the accumulation of capital. Like all Soviet economists,Varga saw in Keynes a false prophet and an ideologue of the reformist social-democraticlabour leaders. He saw in Keynes an eclectic bourgeois economist. Deficit spending wasintended to justify unproductive consumption and the expenditure on arms. In his viewKeynesianism was unable to prevent overproduction crises. Hence, he predicted a worldwideeconomic crisis in 1958. Many Soviet economists attacked him on this point, because they

believed new developments would postpone such a global crisis. Especially the establishmentof the European Common Market attracted their attention. Meanwhile Varga criticized thedogmatists who were always reiterating that inter-imperialist wars were unavoidable and he

stressed the importance of the anti-colonial struggles. He remarked that the capitalist cyclewas showing an tendency to become shorter as rapid technological changes were makingmachinery and equipment earlier obsolete. He explained the phenomenon of instablecurrencies and inflation by the influence of monopoly capital increasing prices in order touphold their benefits. However, some of Vargas fellow economists were also interested ininvestment booms engendered by technological changes. They accused him ofcatastrophism and criticized his belief in a coming recession like that in 1929. By 1960 allSoviet economists could agree on the role of the planning capacities of the state with regard tothe investment cycle. Leading conservative economists, whom always had denied thatcapacity, now argued that military spending had distorted the normal capitalist cycle andthe course of the 1958 crisis.

Keynes and the Soviet Union

In the 1920s and 1930s John M. Keynes was rather well known for his political writings,not for his theoretical economic works, a fact Soviet economists and party leader could notnegate. As such, Keynes was also quoted in Soviet publications. The fact that Keynes visitedwith his Russian wife, the ballerina Lydia Lopokova, in September 1925 Petrograd andMoscow (Keynes, 1925) and he had there talks with Russian economists during a meeting for

the 200

th

anniversary of the Russian Academy of Sciences, may indicate that there was a realinterest from sides both sides at least. But this interest from Soviet side was inspired bypolitical motives because Keynes was also known as an adversary of the Versailles Treaty anda special of war financing. Until Keyness death, Soviet economists would only pay attentionto Keynes as the British wartime advisor and financial expert. Maybe that Eugen Varga, whowas at that time Stalins preferred economist and advisor, appeared as the only reallyinterested Soviet economist paying attention to Keynes and his General Theory, but in thiscase only to the premises of the states ability to combat the economic crisis and secureaccumulation of capital by means of sustaining consumption and investment.

However, all Soviet economics would later reject Keynes as a typical bourgeois economist

serving the interests of the big monopolies having made an alliance with the state in order toavoid the realization problem of capital. But they also recognized Keynes as a progressive

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economists having amended classical economic theory and inspired all social-democraticgovernments in Western Europe. Furthermore, most Soviet economists could not agree on the

premises that the capitalist state would be able to overcome the realization problem ofcapitalism and manage the business cycle of capital. Especially the coming of a post-warslump after the Second World War was attended by Stalin and most Soviet economists

because they all; denied the capitalist state its ability to secure economic growth by solvingthe realization problem of capital. In reality, they believed that history would repeat itself andthat after some minor crises the general crisis of capitalism would be a fact.

In this paper some aspects of the debates this critical acceptance of Keynes in the SovietUnion will be discussed at the hand of the writings and interventions of Stalins chiefeconomist Eugen Varga (1879-1964) and some of his colleagues.

Lenin on Keynes

At the Second Congress of the Communist International (19 July-7 August 1920) Lenindebated extensively in his two reports on the international situation and the fundamental tasksof the Communist International and the national and colonial questions the problems ofcreated by the Versailles Treaty. His analysis was that the Treaty had reduced Germany to thestatus of a semi-colony, thus to poverty, starvation, ruin, and loss of rights. Lenin arguedthat this treaty would bind the Germans for many generations, placing them in conditions thatno civilised nation has ever lived in. Exploitation by a brutal capitalism and by amonstrous intensification of oppression that is far worse than before. Most of Leninsarguments could already be found in his pamphlet on Imperialism written in 1916. However,empirical data and the core of his analysis of the Treaty of Versailles are based on Keynes andthe latters book The Economic Consequences of the Peace. However, Lenin also observedthat Keynes was not only a diplomat, but also a well-known bourgeois and implacableenemy of Bolshevism () like the British philistine he is, imagines as somethingmonstrous, ferocious, and bestial. But apart of this demonising tirade Lenin also recognizedthat Keynes had arrived in his study on the Treaty of Versailles at conclusions which aremore weighty, more striking and more instructive than any a Communist revolutionary coulddraw. That striking conclusion was, according to Lenin, that the Peace of Versailles wouldlead the whole world to bankruptcy. Debts should be annulled and international trade should

be normalized. In the view of Lenin, cancelling of debts, as Keynes proposes, was an ideapopular among petty-bourgeois people (writers, poets, the clergy). And also: Is it not a fact

that the bourgeois Keynes declares that, to survive and save the British economy, the Britishmust secure the resumption of free commercial intercourse between Germany and Russia?How can this be achieved? By cancelling all debts, as Keynes proposes. This is an idea thathas been arrived at not only Keynes, the learned economist; millions of people or will begetting the same idea.

Lenins report would serve as the guideline for the Cominterns position vis--vis the Treatyof Versailles, the League of Nations and the position of Germany in the capitalist worldsystem. Keynes would remain, within this context, a reference after Lenins death (1924).Meanwhile Lenin had attracted the Hungarian economist and former Peoples CommissarEugen Varga as the main economist of the Comintern charged with studying international

economic and political development. Varga became the author of all economic reports to allfollowing congresses of the Comintern (1921, 1922, 1924, 1928, 1935). In his reports Varga

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used to refer to Keynes as well. Also Vargas analysis of the economic situation of Germanywas largely inspired by Keynes.

Varga and Keynes

Varga commented on the problem of inter-allied war debts and the Treaty of Versailles in anarticle in which he analyzed the economic basis of US imperialism and growing antagonisms

between the USA and Great Britain (Varga 1921a):

First of all the question of the war debts. The cautious United States lent money for carryingon the war to England directlychiefly to England, and the latter supplied France, Italy,Belgium, etc. under the present unfavourable rate of exchange these debts are now laying anextremely heavy burden on the countries of continental Europe. The demands of England onthese countries are creating a considerable risk. Frances ruthless altitude towards Germany is

partly due to the fact that she is oppressed by her debts to England. Therefore the English

politician, Keynes, in his book on the peace of Versailles proposed as the only way of solvingthe question that America should annul her demands to all the allies and debtors, that Englandshould do the same in respect to the continental countries of Europe, while France shouldreduce her demands for the reparation of her war losses to the proportions which would beacceptable to Germany. However, the semi-official attempt of England to obtain the consentof the United States for the carrying out of this financial plan met with a decisive refusal. Thecapitalist rulers of the United States are in no wise inclined to sacrifice their milliards in orderto restore European capitalism. This is to our advantage, but England was annoyed by thisfiasco.

In a report on the economic crisis in Germany summarizes Keynes views by underpinningthem additional statistical materials and witnesses of contemporaries. Varga: Thisimpoverishment is a slow, but varying process. The fate of the German workers changes withthe exchange rate of the mark. If the exchange rate rises, imported goods will become cheaperand that will lower the cost of living, thus easing that the workers both ends meet. Because ofa rising exchange rate of the mark exports are also declining. Hence, German goods are anymore competing in the world market. Economic conjuncture will also worsen. Unemploymentand short-time work will therefore rapidly grow. Thus industrialists are now pleading forwage cuts and increased productivity in name of a threatened German industry. Wages willdiminish. Wages of workers will fall beneath the existence level. In addition, Germany willnow be obliged to pay a yearly tribute of some 3 milliards of gold marks, i.e., about some 50

milliards of paper marks. At average some 800 mark per capita per year will be taken awayfrom Germanys gross domestic product as payments to the Entente bourgeoisie. Hence,intelligent English people like Keynes, Norman Angell et al. are raising their voices. But theFrench bourgeoisie turns a deaf ear and is pushing the German proletariat towards therevolution though the leaders of the Social-Democrats and the Independent Social-Democratsare opposing that together with the trade-union leaders.(Varga 1921b)

Varga on Keynes and international monetary reforms

At the outbreak of the Second World War Varga was in charge of writing reviews or

translating books concerning the armed conflict and the belligerent states. Some of theserevues were published in journals, but they were originally destined to Stalin and his Politburo

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worrying about the inter-imperialist conflict. Previously, Stalin had hoped by signing anagreement with Hitler to avoid being involved in the conflict. Varga reviewed WinstonChurchills bookStep by Step (1939) as well as Keyness pamphletHow to Pay for the War?(1940) inMirovoe khozyastvo i mirovaya politika. In order to inform the Soviet rulers hesupervised a Russian translation of Hermann Rauschnings bookGesprche mit Hitler(1939).

During the Second World War, Varga became adviser to the Ministry of Foreign Affairs forpost-war economic problems and German reparation payments. As such he had to payattention to international monetary problems as well, but this time not from the point of viewof the world revolution. Varga: Of special interest among post-war economic problems is thequestion of currency stabilization. Undoubtedly, there is a danger of general devaluation ofcurrencies as was the case after the first World War. At the present time it is quite clear thatwhen the war is over European countries will be threatened by a new currency devaluation.

A situation of this kind is bound to arise after the war unless timely measures are taken toprevent the threatened devaluation of money. This problem is the subject of lively discussion

in the foreign press, and a number of schemes have been advanced, the most important ofwhich are, first, the British scheme drafted by the well-known economist Keynes, providingfor the setting up of an international clearing union; and secondly, the American plan,elaborated by White,1 which calls for the creation of a huge stabilization fund, andinternational bank.

The Keynes plan takes into account the special position of Britain. Implementing the KeynesPlan would undoubtedly help Britain to recover the role of international banker in the post-war period, although stabilizing currencies on an international scale could never be secured bymeans of the creation of an international clearing union.

The existence of an international clearing union could, to a certain extent, modify or postponeforeign devaluation but could not eliminate it. The Keynes plan alone cannot secure currencystability after the war. Only with the continuation of government restriction or individualconsumption and investment, with strict control of foreign trade, and also with extensivecapital export from rich countries to countries ruined by war, could the aim of the Keynes

plan of currency stabilization be achieved. But the employment of all these means - whichincidentally are hardly possible of realization in peacetime under the existing social system,inasmuch as they run contrary to the selfish interests of influential circles - could secure astable currency without an international clearing system. (Varga 1944)

There is no doubt that the currency fund planned by White could become a substantial factorin world economy and secure currency stabilization more effectively than the clearing unionproposed by Keynes. The leading position envisaged for the U.S.A. by the White Plan notonly rests on the anticipation of the U.S.A. being the dominant partner in the currency fund,the British press stresses, but also on the anticipated participation of the countries of Centraland South America, which are under the strong economic and political influence of the U.S.A.In addition to the stabilization fund, the White Plan also provides for the organization of a

bank for reconstruction and development by the United Nations and nations joining them.Undoubtedly the planned bank, together with the currency fund, would represent atremendous economic power.

1 Harry Dexter White (1892-1948) was an American economist appointed at the Treasury. He was a majorarchitect of the IMF and the World Bank.

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But precisely because of this there is considerable opposition to this plan, not only outside,but also inside the U.S.A. For fully understandable reasons, even stronger objections to theWhite Plan are raised in Britain.

Compromise between the two plans is hardly possibly, since Keynes is trying to solve the

problem of stabilization of currency by eliminating gold, and White on the basis of gold;moreover, both these plans correspond to the special economic interests of their respectivecountries.

Naturally, Soviet public opinion cannot but be interested in economic plans of post-warreconstruction discussed in the countries of our allies. The special character of the economicsystem of the Soviet Union determines its attitude to the question of the stabilization ofcurrencies. As a state engaged in foreign trade, the Soviet Union, just as Britain or the U.S.A.,is interested, in the stability of the currencies of the countries it is trading with, in preventingcurrency speculation in other countries from interfering with the normal course of foreigntrade.

If all the Soviet Unions trade with the rest of the world could be conducted on the basis ofgold currency with an unchanging value, this would undoubtedly render trading operationseasier.

As regards the Soviet Unions currency, it is known that here prices - and consequently alsothe purchasing power of the ruble - in the state trade turnover, are fixed by p1an. This meansthat the stability of Soviet currency is secured by methods entirely different from those inother countries. This also obviates the possibility of any kind of proposals in the field ofeconomic policy as far as the Soviet Union is concerned by any future organization, be itinternational bank or currency fund.

On the other hand, the Soviet Union is undoubtedly interested in the beginnings of measurescapable of accelerating the restoration of her economy, as well as of the economies of othercountries devastated by the fascist brigands.

This question is of the greatest importance in estimating the financial plans on the part of theSoviet Union.

Post-war economic problems

Discussing the General Theory and its impact on governmental policies only started after thedeath of its author in 1946 when Soviet economists had to define their position vis--vis the

possibility of capitalism to overcome a coming economic crisis as a consequence of the war.This debate was also linked to reparation payments the Soviet Union wanted to impose onGermany and her former allies, a debate in which Varga played a first role as a specialist inthis field. Firstly, Keynesian economic policies could be linked to successful war productionrealized during the Second World War not only by Hitlers Germany, but also by democratic

bourgeois regimes like the United States and Great Britain. Moreover, the United States hadexpanded their production capacity enormously by investing in new production capacities andwar demand. Secondly, reconversion of war industries for peace production would require a

state-led incomes policy enabling the governments to manage demand and expenditures. Itwas clear that the labour movement in all countries was tempted by Keynesian demand-

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managed policies and that the British Labour Party wanted to nationalized all basic industriesand city services in order to facilitate this reconversion process and modernize this processfrom the very beginning after the war. At any rate, it was very clear that the major capitalistcountries wanted to avoid a new Great Slump and that the Marshall Plan launched in 1947was aiming at coordinating this process under American leadership. Would the Soviet Union

and the new democracies of Central Europa and the Balkans willing to participate in thisAmerican-guided reconstruction project for Europe? After some tergiversations Stalin refusedany collaboration within the framework of the Marshall Aid. This marked the beginning of theCold War as well because from now on the countries of New Democracy explicitly opted fora socialist regime based on central economic planning and nationalization of big industries,

banks and large estates in case they had not yet been socialized just after the war. Fromparliamentary regimes these new democracies which were in the words of chief economistVarga neither a bourgeois democracy nor a proletarian dictatorship they became a form ofdictatorship of the proletariat led by a Communist Party having in some countries (Hungary,Poland, the GDR) also reintegrated the Socialist Left. Meanwhile it appeared that there wasno place for Varga anymore and that any positive reference to Keynes was an ideologically

defined crime against Marxism-Leninism and a cosmopolitan deviation. Planning incapitalism was impossible. Hence, why discuss Keynesian policies as everybody could predicta new world-wide slump after a more or less short period (not more than 10 years) of post-wareconomic recovery.

In 1947 Stalin not only refused to participate in the Marshall Plan, but he also decided toresuscitate the former Communist International in the form of the Kominform, onorganization which had to coordinate and supervise all foreign communist parties. In theSoviet Union, Andrey Zhadanov was entrusted with all tasks of ideological realignment.Scientific institutes were ordered to support this process and to break with all westerninfluences. Varga, who had been enticed by US economic development and its ability tofinance the war, would become one of the victims the successive purges. In an article

published in an issue ofForeign Affairs in the summer of 1947 he had called PresidentRoosevel a great statesman and hailed the British Labour Party for having nationalized all

basic industries and public services. Vargas recently published bookChanges in theEconomy of Capitalism as a Result of the Second World War(1946) became the object oforganized polemics. Vargas institute ofWorld Economy and World Politics was closed downand merged with theInstitute of Economics. He lost thus his directorship and was assigned towrite a book on recent imperialist developments. His close collaborators were also criticizedfor having a bourgeois outlook on world affairs. In the second edition of the Great Soviet

Encyclopaedia Varga was described as a bourgeois economist as well. Main criticism was

targeting Vargas overvaluation of the role of the capitalist state and his failure to analyze thesubjecting of the capitalist state to the monopolies. Varga was blamed for having omitted theimpoverishment thesis as well. This campaign went hand in hand with attacks oncosmopolitanism and on admirers of Keynes economic theory and Beveridges fullemployment policy in a free world. These attacks were led by I. Blyumin who reviewedBritish publications (of Keynes, Beveridge, Kalecki, J. M. Clark, Bretherton, Burchardt andRotherford). Blyumin concluded his attacks with the following appeal: Only a socialistsociety creates the possibility of suppressing capitalist anarchy in production and avoidingeconomic crises. Only a socialist country will establish the right on labour. (Bljumin 1948:52)

A discussion of Keyness ideas was from now on banned from the Soviet Academy ofSciences and its institutes. The Varga incident was thus a typical incident having occurred in

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the aftermath of the Second World War and at the beginning of the Cold War. It was aharbinger of internal political and ideological shift marking a retreat from Soviet cooperationwith the west.

However, after Stalins death in 1953 and Nikita Khrushchevs rise to power an open

discussion on Keynes was launched in the Soviet Union. Its initiator was Vargas long-standing former colleague and close friend A. I. Trakhtenberg (1954a, 1954b, 1956a,1956b). This had also to do with Khrushchevs new course stressing peacefulcoexistence with imperialism and the peaceful forces in the world. Especially Indiawas considered by the Soviet economists of the Varga school as an example of

progressive development in the post-colonial world. Especially Keynes theory of fullemployment and the role of credit in capitalism was highlighted. This happened at aconference in New Delhi (India) where Trakhtenberg gave a lecture on the Basic lawsand special features of economic crisis (Trakhtenberg 1956b). These rathermodernizing views on capitalism and the latters ability to manage the investmentcycle was not shared by all Soviet economists. There was still a hard core of Stalinist

economists defending the impoverishment thesis and the final breakdown theory ofcapitalism (roughly based on the underconsumptionist thesis). Though Varga rejectedthe latter theory, he nevertheless was very critical to Keynes and the ability ofgovernments to manage capitalism. Varga objected that Keynes was a typical eclecticeconomist only dealing with the superficial phenomena of capitalist economy, becausehis theory was a confused rag-bag for not having created an economic theory of hisown or having refuted the teaching of the founders of bourgeois political economy(Varga 1968: 305-6).

Vargas main charge against Keynes was the latters muddling thinking (Varga 1968: 320)and that any class analysis or historical approach was absent in the latters writings. In hispseudo-psychology, Keynes had forgotten that competition forced the individual capitalistto make a profit or perish. Keyness abstract economic man and psychological laws had novalidity in the real capitalist world in which there were at least a thousand million peoplewhose incomes are so low that they are forced to live in perpetual hunger, or people whoseincomes are so large that it would be simply impossible to spend them on consumer goods.Hence, Keyness policy of overcoming the narrowness of the market by increasingunproductive consumption among the non-working classes was not as absurd as it wouldseem at first glance (Varga 1968: 307-9). Deficit spending was also intended to justify theexpenditure on arms. In the theory of Keynes, unemployment was caused by the fact that notall people wanted to spend their whole income on consumption or o investment. But the

principal cause of unemployment was the capitalist system itself. According to Varga,Keyness economy could avoid crises of overproduction and mass unemployment. That wasalbeit in complete harmony, with the interests of the monopolies and the wishes of thereformist union leaders and politicians (Varga 1968: 316).

Varga recalled that the laws of capitalism are tendencies which are always opposed bycounter-tendencies and that social formations or modes of production do not exist in a pure,static form. There was thus no such thing as an immutable thing in itself, he reasoned.Meanwhile meanings were modified by circumstances depending on the average point fromwhich it is observed. The debate on the state had since 1947 centered round the questionwhether under the monopoly capitalism the state is a state of the whole bourgeoisie, [] or

state of the whole bourgeoisie, [] or a state solely of the whole bourgeoisie, [] or a statesolely of the monopoly bourgeoisie (financial oligarchy), as asserted by my opponents.

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However, depending on the concrete historical situation either thesis may be correct orincorrect, but under normal conditions the capitalist state was serving the interests of themonopoly bourgeoisie to continue the exploitation of the working class (Varga 1968: 45). Thestate could thus only act on behalf of the interests of the whole bourgeoisie at times when theexistence of the capitalist system is in danger (Varga 1968: 45). The state could thus only act

on behalf of the interests of the whole bourgeoisie at times when the existence of thecapitalist system is in direct danger (Varga 1968: 45-6). Due to an aggravation of the generalcrisis of capitalism, the safeguarding of the capitalist system had become a more importantfunction of the capitalist state. As all classes and strata of the population were receiving adirect and indirect income from the exploitation of the working strata, the state was muchcontributing to capitalisms survival as well.

Capitalist breakdown theory

Soviet economic science still rejected the idea that Keynesian policies were able to fine-tuning the economy. Regularly economic downturns occurred and the moment of a generaleconomic slump was approaching. The 1958 cyclical dip the USA was not a transient

phenomenon of overproduction, but announcing a worldwide recession and slump resemblingthe slump of the 1930s. US monopolies, Varga argued in that year, were now weakening thelabour movement and increasing their profits while unemployment was rapidly rising. ButVarga did not believe that Keynesian remedies could help. More spending and less taxescould only prolong the crisis the crisis, render it more severe and impair the interests of thecountry and the whole business community. Manufactures were selling at higher prices thanin 1955, while labour costs were dropping. Varga concluded that intensive re-equipment hadcaused higher productivity, so that labour costs could drop. Meanwhile the living conditionsof the backward countries, the former colonies and the semi-colonies were severely hit by thecrisis because they had to lower prices of their exports (raw materials). The drop in primarygoods prices meant extra revenues for the capitalist economies as well, but also less exportrevenues (derived from the export industrial products) that accentuated the economic crisis inthe developed capitalist world. The biggest sufferers were the old industries (coal, steel,cotton textiles and leather), while the new industries had suffered only slight damage (Varga,

New Times 1959/5: 10-12).

Varga argued that the export of all capital to the former colonial and semi-colonial countrieshad stopped now that the latter had embarked on the socialist road. Thus capital export was

limited to a few numbers of politically and economically stabile countries. However, thistendency was not at all hastening the process of imperialist breakdown as long as large-scaleexport of capital could continue in the form of economic-military aid (New Times 1964/8:4-7). This new tendency had only brought a temporary expansion of the market and, allother conditions being equal, a lengthening of the trade cycle (Varga 1968: 220). For thetime being, no predictable breakdown of imperialism could be expected as moderntechnology was helping the capitalist countries to open up many new deposits or developsources of raw materials. The long post-war boom in the US was a result of postponedconsumer demand for durables and a tremendous unsatisfied demand for means of

production for the peaceful branches and for consumer goods (Varga 1968: 222). Thewell-to-do people and even some categories of industrial workers had to wait for spending

their savings because of the shortage of consumer goods.The three factors were responsiblefor the lengthening of the post-war cycle were (1) an expansion of fixed capital until 1957;

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(2) large commodity stocks accumulated during the war; (3) an artificial expansion ofconsumer credits. Increased additional demand (or future purchasing power) had now beenused to save the present situation (Varga 1968: 226).

Vargas commentaries on the economic cycle have to be situated in the ongoing debate onthe post-war capitalist cycle and the role of the state in which many Soviet economists triedto mark points. Already in 1956, I. A. Trakhtenberg had pointed out that the course ofdifferent crises and cycles was marked by peculiarities determined by temporary operativefactors in the given country and in a given cycle.. The continued militarisation of theeconomy and military expenditures had not prevented the outbreak of the crisis in 1953, butthis crisis was not followed by a credit crunch or a slump or a downturn in the Europeancapitalist countries It was noted that the increase of the American automobile productionwas playing an important role in the boom. This is because sharp competition compelled the

production of a greater quantity of 1955 models in a shorter time. This brought about in itsturn a rise in steel smelting which is reflected in the general index of industrial production.However, Trakhtenberg retracted when adding that such a temporary factor could not by

any means be a prolonged stimulant for general industrial growth (Trakhtenberg 1956b:27)

In 1957 Varga observed in a second edition (first edition 1953) of his bookBasicQuestions of Economics and Politics of Imperialism (Osnovnye voprosyekonomiki i politiki imperializma) that industrial production in the capitalist world hadalready grown by 80 percent. Meanwhile, cycles had become more frequent, but they werealso more moderate than before. Employment and wages had increased as a consequence ofa high rate of capital accumulation. Military consumption contributed to a certain marketexpansion as well, which indicated that in the post-war period no depression of a specialkind existed anymore. How to interpret all these changes? Would there come a deepeningcrisis and a further breakdown of US economic power in the world? At any rate, Varga

easily concluded in 1958 that the crisis hitting the USA would spread all over the world(Varga 1958). Varga published his views on the problems of the post-war industrial cycleand the new crisis of overproduction in Kommunist(1958/8: 140-157) and in Mirovayaekonomika i mezhdunarodnye otnosheniya (1958/6: 18-35). These views werealso published in the USA (Varga 1958) and attracted the attention of commentators andanalysts. Was Varga expressing the opinion of the leaders in the Kremlin as well? In this

publication he attacked some Soviet economists having expressed the opinion that the waritself created the conditions for a crisis of overproduction because of the excessivedevelopment of the war industry and its associated branches and the lagging behind ofindustries producing consumer goods. That theory, he argued, echoed the bourgeois and

revisionist view that it is not capitalism itself that is responsible for the crisis ofoverproduction, nor it is the contradiction between the social character of production and theprivate capitalist form of appropriation with the ensuing poverty of the proletarian masses,but a disproportion between the various branches of production (Kommunist1958/8;148-9). Varga thought that disproportions may explain a partial crisis in separate branches,

but an explanation of the business cycle as a whole had to begin with aggregate demand andsupply. The beginning of the post-war cycle had started in 1947. Several factors hadcontributed to postponing the attended slump. Lengthened phases of recovery were mainlydue to increased military orders during and after the Korea boom and to expandingconsumers credit. The decaying colonial system had influenced the cycle as well, whileincreased capital exports from the US were influenced by US military expenditures. But all

these factors could only have postponed the crisis to a later date. Varga predicted now thatthe US downturn in 1957-58 would spread to other capitalist countries as well. For the

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moment, he already diagnosed a fast decrease of the prices of raw materials, a crisis inshipbuilding and shipping and a decline in investments. Although it was at that moment tooearly for giving an analysis of the world economic crisis, Varga sustained that without anydoubt the crisis in the USA was the beginning of a worldwide economic crisis(Kommunist1958/8: 157).

Vargas prediction of a worldwide economic crisis was met with unbelief by his colleaguesand party officials. On 29 April 1958, a meeting was organised at the Institut MirovoyEkonomiki i Mezhadunarodnykh Otnosheniy (Institute of World Economy and InternationalAffairs, IMEMO) in order to discuss Vargas thesis. The meeting presided over by V. P.Dyachenko ended in confusion with discussants vehemently rejecting Vargas prognosis andaccusing him of catastrophism. I. Shmidts opinion was that Vargas prognosis was wrong.I. M. Lemin predicted a new investment boom as a result of technological progress. Ya. A.Kronrod could not discern the signals of a coming financial and stock market crisis. N. V.Orlov rejected the idea that investment in Europe would slow down because of a recession inthe US. V. D. Kazakevich criticised Vargas belief in a coming of a recession like that in

1929 (Mirovaya ekonomika i mezhdunarodnye otnosheniya 1958/7: 148-51).Unfortunately for Varga, but no profound economic crisis would spread from the US overthe rest of capitalist world. The publication of his announced book on the politico-economic

problems of capitalism was delayed until 1964. His incriminated article published in bothKommunistand Mirovaya ekonomika i mezhdunarodnye otnosheniya wasrewritten (Varga 1968: 207-239).

Vargas arguments concerning the postponed crisis and the working of the capitalist cyclehad meanwhile become common knowledge. By 1960, all Soviet economists could agree onthe role of the planning capacities of the state with regard to the investment cycle. The statecould hence serve the general interests of the whole bourgeoisie by redistributing income tomany sectors and branches of the economy.

Leading conservative economists like I. I. Kuzminov, A. I. Kats and S. L. Vygodskiythought that the permanent militarisation of the US economy had distorted the businesscycle. Different opinions among Soviet economists still persisted in the early 1960s.Kuzminov argued that militarisation, like war, could not have a great influence upon the

process of reproduction, the capitalist cycle and the course of the crisis phase. Unevennessof the development of the crisis together with short-term upward trends had concealed thedevelopment of the crisis in Britain and elsewhere. A main reason for the special features forthe developing crisis in 1957 and 1958 was the disruption of the synchronism of the worldcapitalist cycles as a result of the Second World War (International Affairs 1959/3: 29-37).

During the post-war period Kuzminov, an unrepenting Stalinist, and Varga were profoundlyat odds. In 1961, when attacking Kuzminov, Varga called for a better understanding of theworking of the capitalist production cycle (Mirovaya ekonomika imezhdunarodnye otnosheniya 1961/3: 93-103; Varga 1968: 207-39). Vargas

position was clear. He preferred focussing on all distinguishing features of the post-1945economic cycle. US economic supremacy over all other capitalist countries had decreasedand American goods were not dominating the world market anymore. A constant drain ofgold reserves undermined its monetary system. In spite of high labour productivity based onup-to-date equipment, the US economy could not play the role of the sole defender of worldcapitalism. Even complaints about American dumping practices were heard. Structural

unemployment was growing in a period that economic growth rates were slacking down. Itwould be illogical that two different cycles exist in the future. Sooner or later a cycle of a

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single type will be established throughout the capitalist world. In our opinion this cycle willresemble the post-war development of the USA (Varga 1968: 232). During the post-war

boom this renewal and expansion of capital was characterised by new factors, such as thespeedy methods of factory construction, the rapid technological progress making equipmentsooner than before obsolete, the rapid replacement of equipment, capital investment in the

modernisation of operating factories, etc. All these factors would accelerate the break-out ofan overproduction crisis and shorten the capitalist cycle.

Varga foresaw a period of economic stagnation in the US with available equipmentconstantly underemployed and thus also a general intensification of the class struggles. Ageneral aggravation of the contradictions of capitalism would follow as the laws ofcompetition operating under monopoly capitalism were forcing capitalists to renew andexpand their fixed capital. The reproduction cycle is determined, Varga argued, by thefixed capital, or [] every crisis is the starting point for a mass renewal and expansion offixed capital undertaken for the purpose of lowering production costs. Extra-economicfactors could be invoked in order to explain the long post-war cycle with growing prosperity.

On the one hand, Varga noticed that the capitalists now have a far deeper knowledge of theoverproduction following a boom and also of world market conditions than they had inMarxs time or even 30 years ago.He thought that efficient projected statistics existed incombination with market-research reports enabling capitalists to pre-gauge consumerdemand and thus avoid an overproduction of commodities. Even the state could increaseeffective social demand. But on the other hand Varga refused to believe in demandmanagement under capitalism. Under capitalism there can be no state planning, no crisis-free capitalist reproduction, he recalled. In the future the long and powerful growth inoutput would thus come to a standstill. The deepening of the general crisis of the capitalistsystem is expressed by the growth in the number of industries which are in a state of

perpetual crisis, such as coal, textile and ship-building industries, and those being gradually

drawn into this state the iron and steel and motor industries (Varga 1968: 238-9).However, the reproduction cycle after the Second World War differed from that of theinterwar period because of the (1) contraction of the capitalist world as a result of theappearance of new socialist states; (2) sharpening of the contradictions in some of thecapitalist countries; strengthening of the Communist parties and weakening of the Social-Democratic parties of these countries; (3) disintegration of the colonial system ofimperialism. As a result, striking differences existed between the business cycle in Britainand the continental European countries, where no crises of overproduction had occurred.Fortunately, the laws of the reproduction cycle, like all laws, were no more than scientificabstractions, and they were determined by the different tendencies and counter-tendenciesat work in capitalist economy (Varga 1968: 207). Meanwhile, cyclical economic upsurgeshad not led to a full-fledged boom in the US. The dialectic of the general crisis of capitalismwas such that its effect was greater in the richest capitalist country (New Times 1962/32:4-7). In the mean time, the American economy was caught in a vicious circle ofundercapacity caused by low purchasing power, low investment and increased competitioncompelling the entrepreneurs to automate their factories.

In hindsight, Varga regarded the year 1947 as the beginning of a post-war cycle lasting some10 or 11 years. The cyclical movement of world capitalist production was all the time feebleand its main function was the creation of the conditions for a crisis of overproduction(Varga 1968: 212). The disintegration of the colonial system had a telling influence on thecourse of the cycle. The war weakened all the imperialist powers with the exception of the

United States. They could no longer hold all the colonial nations in subjection by armedforce. The crisis of 1958 had not been the beginning of a depression either as in 1959. The

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1959 output level was considerably above the preceding peak. Post-war production growthhad been almost entirely due to economic growth in the developed capitalist world. How toexplain the fast recovery of the Japanese, German, Italian and French economies and sloweconomic growth in the US and Great Britain? Economic recovery in Japan and WestGermany should be attributed to their comparatively low military expenditures and to a rapid

expansion of their fixed capital. Due to the Cold War, the US could take up large-scale armsproduction soon after the end of the Second World War. Thus, even in peacetime, the USmonopolies could get new and highly profitable orders. Meanwhile, no idle productionreserves existed; the result was an overstrained and unbalanced economy similar to that intimes of war (Varga 1968: 218). Varga concluded that war production was able tolengthen the upward and overstrain phases, and hence the whole cycle, but cannot avert acrisis of overproduction, as has been conclusively proved by the 1957-58 crisis (Varga1968: 219). Regarding the business circle, Vargas views were the following: (1) the periodof the Second World War should be excluded from the cycle; (2) 1947 should be consideredthe beginning of the post-war cycle; (3) the first post-war cycle continued to the 1957-58crisis of overproduction; (4) the second post-war cycle began after that crisis. In the long

run, a single cycle would establish itself for capitalism as a whole and it would be similar tothe post-war cycle in the US and Britain, i.e., would be shorter than it had been before theSecond World War.

In his reply, Kuzminov asked for a better analysis of the specific features of cyclicaldevelopment in post-war capitalism and for a correct conception of the post-war cyclewhich conforms to reality (International Affairs 1961/8: 61). Kuzminov distinguishedfour groupings of countries with a different capitalist cycle which should be assigned to theinfluence of the Second World War on the economies of those countries. The US, Canada,Mexico and Australia had taken advantage of the favourable war boom, which had led tosubstantial economic growth. A second group of countries the European countries having

been occupied by Germany had suffered from destruction and pillage. A third groupincluded the impoverished countries of the former Hitler coalition. A fourth group wasformed by the underdeveloped colonies and semi-colonies where industry had expandedafter the war as well. The problem was that after the war one group of countries wasconfronted with overproduction, while other groups faced the need to restore theireconomies.

Kuzminov attacked some economists proceeding from a schematic conception who couldnot explain the origins of the 1948-49 and 1953-54 crises in the US. He hit the nail at thehead when putting that the Second World War had upset the synchrony of the investmentcycle and aggravated all the contradictions of capitalist reproduction as well. As the UScould export capital to Europe, the American economic crisis of 1957-58 did not develop tothe full in the US and affected most European countries only to a small extent. This wasconfirmed by the new economic crisis having begun in 1960 in the US. He attacked Vargafor having said that this crisis could not be called local or intermediary. It was thus a worldcrisis. Kuzminov referred to the fact that the recent US crisis had an intermediary characterexerting a marginal effect on the other capitalist economies. Though the modification of the

post-war capitalist cycle had led to intermediary crises, some economists (i.e. Varga) hadunduly defined an intermediary crisis as a crisis of a separate branch of production incontrast to a general crisis of overproduction. Kuzminov referred to Marx and Engels whoregarded intermediary crises as specific, but specific not in one (a branch), but in two senses.Crises could occur in a branch, but also locally. Intermediary crises in the US after the war

were thus of the second type and were a consequence of the desynchronisation of the worldcircle. He reminded Varga that the US economy was an integral part of the world economy.

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Thus the first post-war cycle had started in 1945-46 in the US and ended in the world crisisof 1957-58. The cycle had thus lasted for eleven or twelve years. Could local crises acquire amore or less regular character? Did intermediary crises affect the cycle? According toKuzminov, Vargas assertion that an intermediary crisis was not followed by a phase ofdepression was painting a one-sided picture as well. For Kuzminov the US economy was in

a phase of chronic crisis: chronic crisis in some branches of production, chronicunemployment of industrial capacity and chronic mass unemployment. War preparationsmight therefore prevent the deepening of the crisis or cause a temporary upswing of

production, but on the whole militarisation of the economy can bring about only secondarychanges in the main picture of the cycle, Kuzminov concluded (International Affairs1961/8: 68).

Commenting on Vargas analysis of the cyclical course of reproduction in Politico-Economic Problems of Capitalism, V. A. Cheprakov (1968: 3-10) argued that many viewsamong Marxists existed on the post-war cycle. Cheprakov agreed with Vargas warningagainst an overestimation of the anti-crisis measures taken by the capitalist state, but he

added that it is undeniable that state activities can influence the factors determining theintensity and duration of the upward phase and the depth and duration of the crisis phase infuture cycles.

The European Common Market

Soon the discussion on the business cycle would become connected to the problem ofdomestic market enlargement, in-depth investment and rising purchasing power of themasses. Nobody could deny anymore the rising living standard of the workers in the USA

but also in most Western European countries. Income policies developed by Social-Democratic governments and Keynesian budgetary measures had proved to be successful inmost countries. Notwithstanding concentration of capital and penetration of monopolycapitalism in all sectors of the economy, technological progress had not been halted byMalthusian industrial investment policies. New developments in capitalism could beobserved with the European Common Market aiming at overcoming economic rivalries

between the German Federal Republic and France. Could inter-imperialist contradictions besuperseded or postponed by monopoly capital? Were Keynesian policies off-shoots ofmonopoly-capitalist influences at the governmental level where Big Capital was meeting BigLabour as well?

On 15 April 1957, the Department of Political Economy of the Academy of Social Sciences

of the Central Committee of the CPSU organised a debate on the recently establishedEuropean Common Market. The meeting, which was attended by economists, publishers,

journalists, post-graduates and lecturers on international problems, discussed the presentsituation in the capitalist world. I. I. Kuzminov, S. L. Vygodskiy, B. M. Pichugin, A. M.Sharkov, M. N. Smit, V. V. Rymalov, A. I. Shneyerson, Y. Y. Kotkovskiy and A. M.Alekseyev gave a lecture. Obviously, Varga had been forgotten when organising thedebates (International Affairs 1958/5: 76-102).

In March 1957, Varga had nonetheless published an article on the European CommonMarket. If the ruling element in these six countries wanted to establish a real commonmarket, and were in the position to do so, it would be enough to set out in a few pages the

basic provisions for abolition of customs tariffs and other trade impediments, unification oftaxes, repeal of export subsidies, etc. (New Times 1957/10: 11). Increasing military,

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financial and economic dependence on the part of France and Britain vis--vis America hadbeen the result. The costs of the presence of American troops amounted to nearly US$2,000million a year. A Common Market might help to increase trade between the six foundingstates, Varga argued, but it would change nothing in their economic relations with the rest ofthe world. A radical change in their foreign and economic policy would require a genuine

peaceful coexistence, an expansion of foreign trade with the socialist countries and an all-European collective security system embracing both capitalist and socialist countries (NewTimes 1957/10: 12). Varga saw the Common Market as a return to the conditions existing

before the First World War, thus as an attempt to overcome the dividedness of the worldmarket by uniting the markets of six countries (Varga 1968: 71). The Common Market wasalso an attempt on the part of the West European imperialist powers to consolidate their

position following the political liberation of the colonial countries, to enable them to conducta vigorous policy of neo-colonialism and to compete with the United States. Equalconditions for competition, however, served primarily the interests of the big monopolies.For him, the Common Market was nothing but a politically desperate attempt to resolveimperialisms inevitable internal contradictions and to oppose the socialist world system by

a single imperialist front (Varga 1968: 71-2).By 1962, a debate on the new phenomenon of regional economic integration and supra-nationalism could no longer be avoided. In the GDR a congress debating on imperialistintegration or self-determination? was held on 7 and 8 June 1962. In his keynote speechProfessor K.-H. Domdey (University of Rostock) argued that European integration had beenconcocted by American imperialist interests and German monopolists.(Wirtschaftswissenschaft1962: 1726-31). Between 27 August and 3 September 1962,an international conference of Soviet and foreign communist economists met in Moscow atthe invitation of IMEMO and the Prague-based World Marxist Review. Varga wasallowed to contribute to the lengthy debates on the European economic integration process.

In his contribution, he (1964a: 324-32; 1962b: 49-72; 1968: 286-301) argued that theCommon Market was a plan of capitalist integration, thus an attempt to perpetuate theeconomic exploitation of the former African colonies and to unite monopoly capital againstUS supremacy. Not the market, but only an increase in demand could expand production inthe future. However, the laws of capitalism and imperialism would lead to increasedcentralisation of capital in combination with a lowering of the wage level, thus to a shrinkingmarket of consumer products. Regional integration would not provide a solution to therealisation problems of capitalism (Varga 1964a: 332). Italian Communist journalist EmilioSereni repudiated Vargas thesis as abstract and wrong, because market integrationwould also mean a change in the international division of labour and a lowering of

production costs. The accumulation process of capital would not only create a larger market,

but also growing production in other sectors of the economy.Later, Varga reformulated the question of European integration as follows: can such anassociation lead to a constant, or enduring non-cycle expansion of the populationsconsumption capacity? (Varga 1968: 290). His answer was negative. Market expansion forDepartmentI goods would not ensure an enduring upswing of production as a whole. Ifthe demand for goods produced by Department II was not high enough, the production ofDepartment I goods was bound to decrease. Only adherents of Tugan-Baranovskiystheory can believe that a constant expansion of fixed capital can ensure a steady crisis-freeupswing of capitalist production (Varga 1968: 290). The economic consequences of aCommon Market would be insignificant as long as there were no changes in the operation of

the objective laws of capitalism, thus capitalisms realisation problem would not be solved.No constant or even protracted expansion of the market for consumer goods (Varga 1968:

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291) could be expected for a more or less enduring period. Varga predicted a contradictorydevelopment with the largest monopolies attempting to corner the newly acquired markets.Social labour productivity would grow and the socially necessary labour time embodied in acommodity unit would decrease, but, all other conditions being equal, less workers wouldalso mean a decrease of the total wage sum. Even if the size of real wages of every

individual worker would remain unchanged, the market for commodities produced byDepartment II would shrink. Increase in the demand for consumer goods would thus beessential, which ultimately would depend on a redistribution of the national income infavour of the working class. However, the outcome of the predicted intensified competitivestruggle would be the ousting of all weaker competitors combined with a rapid centralisationof capital and a concentration of industrial production would tend to a decrease of realwages, with a resulting drop in the demand for consumer goods, and hence an aggravation ofthe market problem.

Varga considered the European Common Market primarily as influenced by a mercantilistspirit. As the key to a stable economy, exports were favoured with credits and subsidies. If

the European Common Market would be able to increase its exports by 50 per cent, itsgeneral market capacity would only be expanded by even less than 7.5 per cent. A countryexporting commodities received reimbursements for their value from abroad, but thesereimbursements would take the form of other commodities, since no country was able to payfor all its imports in gold. These imports often consisted of commodities also produced inthe country in question, which naturally would result in a narrowing of the market fordomestic goods.Finally, Varga warned that his analysis was abstract and theoretical,

because it did not touch on the concrete historical conditions, but referred to the theoreticalassumption that if full economic integration could be realised, the problems capitalism wasfacing would not be solved. A complete economic union would also mean a singlecurrency, a single budget, a single state, i.e., complete political integration, the rejection of

all individual sovereignty by the countries in question (Varga 1968: 302). He prophesiedthat the chances of this happening were so slight as to be negligible.

Capitalisms decay

On 26 November 1959, a meeting was scheduled at the conference hall of the Department ofEconomics, Philosophy and Law of the USSR Academy of Sciences at the occasion ofVargas 80th birthday (Arzumanyan, Lemin and Khmelnitskaya eds 1959). Some 1,500invitations had been distributed. K. V. Ostrovityanov delivered the usual keynote address in

which he praised Vargas contribution to the development of economic science and hisselfless devotion to the cause of the working class. The text of Vargas lecture was publishedinKommunist(Varga 1959) and many other journals as well (Varga 1962a). In 1961, Varga

published a little book entitled Twentieth Century Capitalism (Varga 1962b) inwhich he broadened the subject of his lecture.

In his lecture, Varga put forward that the capitalist system had outlived itself, becauseimperialism did not determine the course of societys historical development anymore nowthat socialist system was expanding over the world. During the Second World War, heargued, the struggle between both systems had not ceased, which explained why the coldwar in the post-war period could develop (Varga 1962b: 49). However, radical changes inthe relation of forces of socialism and capitalism had meanwhile occurred at thedisadvantage of capitalism. Western Europes economic recovery during the post-war periodshould be explained by the influx of American capital in the form of direct investment,

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loans, the purchasing of shares, state aid, etc. That period of extraordinary but temporarilyexpansion ended, however, in the economic downturn of 1957-8, when the dominant trade

position of the US on the world market had deteriorated. Although the US dominated allother capitalist countries, the difference in the level of economic development may becomesmaller (Varga 1962b: 64). Varga enumerated several relevant phenomena having

contributed to this slowdown, such as the ever-growing organic composition of capital andthe concentration of wealth and income in the hands of the propertied classes. As a result anincreasing number of people had become employed in unproductive jobs in the servicessector.

Vargas seized this unique chance to criticise the dogmatists who were always reiteratingthat inter-imperialist wars were unavoidable because Stalin, the chief arbiter, had said thatthose who were denying the inevitability of wars between imperialist countries saw only theexternal phenomena and failed to see the abysmal forces which, operating almostunnoticeably, would decide the course of future events (Varga 1968: 75).Stalin hadhowever completely forgotten Lenins law of uneven development under imperialism when

arguing that the US would always conserve its economic supremacy over the othercountries. The law of capitalist development was nonetheless leading to a growingexploitation of the underdeveloped world. Monopoly capital still exploited the ex-colonies

by neo-colonialist methods and economic aid. The countries in the underdeveloped worldhad yet an opportunity to decide on the choice of two paths of development the capitalistand the socialist paths (Varga 1962b: 10). Varga pointed out that unequal exchangemechanisms and trade monopolies were at the disadvantage of the developing countries.This was one of the reasons why the economy of the imperialist countries had suffered solittle from the loss of political power over the colonies (Varga 1962b: 102-3). No realchanges in the price levels in favour of the underdeveloped world should be expected. In thedeveloped capitalist world, technical progress had led to the production of substitutes such

as synthetic rubber, plastics or artificial diamonds, and mechanisation had profoundlytransformed agriculture.

As usual, Varga limited his analysis of economic changes in capitalism to a longenumeration of phenomena and facts, such as increased state regulation, state-ownedenterprises or the appropriation and redistribution of the greater part of the national income

by the state. The big monopolies could not go bankrupt as long as they were not obliged toreduce their prices, but in case of necessity the state would always float them. In a period ofeconomic crisis, the entire burden was borne almost exclusively by the working classes, the

population of the underdeveloped countries and the weaker sections of the nationalbourgeoisie. All state spending was to the advantage of monopoly capital. Even the schoolstraining the work force or the medical services keeping the workers healthy were working atthe service of monopoly capital. In Vargas analysis, state-monopoly capitalism appeared asextremely reactionary because it exists in order to defend a capitalist system that is doomedto collapse (Varga 1962b: 116). The financial oligarchy was now employing complicatedways and means to make use of the savings of the people for their own enrichment. Therelations between banks and industrialists had thus changed since the burden of the crises ofoverproduction was distributed in society in a different way (Varga 1962b: 109).

The capitalist cycle was showing a tendency to become shorter as rapid technologicalchanges were making machinery and equipment earlier obsolete. The economic crises would

become more profound than they had been during the first fifteen years after the SecondWorld War. Again Vargas analysis comprised a mixture of Hilferding finance capital and

Luxemburgs underconsumption thesis as well. The social character of production and theprivate character of appropriation created a chronically narrow market compelling the

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capitalists to sell their consumer goods on credit. Inflation and unstable currencies were theeffect of monopoly power, while armament spending had become a technique to overcomethe effects of the narrowness of the domestic market. As before, superfluous capital wasexported. The volume of state loans had meanwhile increased in importance as a weapon inthe struggle against the socialist system. The independent entrepreneurial class had

disappeared, while hired managers were leading the enterprises, while growing section ofthe bourgeoisie had become parasitic (Varga 1962b: 129).The monopolies were takingadvantage of inflation. High monopoly prices were set in order to meet the demands of theworkers in part. Meanwhile, growing numbers of unskilled workers were replacing skilled

personnel and at the same time levelling out workers wages. As technical progress hadbrought about a rapid increase in labour productivity, a reduction of the working week incombination with the creation of more office jobs was nonetheless possible. Productivitygrowth was meanwhile five times greater than the reduction of the working week. Thatmeant, in turn, that the bourgeoisie was receiving constantly growing profits while at thesame time buying over a growing section of the working class, with a relativeimpoverishment of the working classes as result.

Finally

Later on, in the 1960s and the 1970s, Keynes was more thoroughly discusses by Sovieteconomists. However, they always blamed Keynes for not explaining the very naturecapitalism, i.e. its exploitative nature. Hence, Soviet economists rejected Keynes as abourgeois ideologue. Moreover, Keynes had not broken with classical theory of perfectmarkets and private ownership of capital.

In Keynes, there is no theory of value based on exploitation of labour power or the laws ofmotion of capital. Profit is not the independent variable driving investment. Keynes macro-economic model does not reveal the exploitative nature of capitalism with its profit-drivenmechanisms. Keynesian spending policies do not pay attention to the impact of boostedaggregate demand on profitability. Crises and economic depressions are the result of a failingcredit system and effective demand, not the consequence low wages, overinvestment ordistorted markets (monopolies; economic dependency, imperialism, etc.). This rejection ofKeynesian economic thought was, however, amended after the death of Stalin in 1953 whenSoviet and other economists made more thoroughgoing evaluations of Kenyesian policies andthe functioning of state-monopoly capitalism. Soviet economic scientists catalogued in a more

positive way Keynesian economic thought and Keynes works. This tendency was followedby the Moscow-oriented communist parties as well, although all communist economics wouldstill rejected Keynes on several grounds.

A good example here is the book the Cuban economist Benito Besada Ramos (1981) wroteon Keynes in which he listed his arguments against the General Theory of Keynes:

From a methodological point of view the theory of demand is identical to that of themarginalists.

The theory incorporates within its reasoning the Pigou effect, although there are partsof his book wherein he explicitly rejects it.

The law of the diminishing returns is literally accepted. The General Theory is based on psychological. Marginalism and a static model prove the influence of neoclassical theory.

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Involuntarily unemployment is an important new element. The General Theory is based on a static model and influenced by neoclassic thought. The interest rate is a strictly monetary phenomenon based on two elements: liquidity

preference and money mass.

About the same critics were expressed by Soviet economist I. Ossadchaya, but her politicalappreciations were more explicit. She admitted that the apparition of the theory of Keyneshas been one of the most important phenomena of bourgeois political economy in the era ofthe transformation of monopolist capitalist into state-monopoly capitalism. This theory has

brought qualitative new elements into bourgeois political economy [] and has laid theground for a new bourgeois political economy, i.e., macro-economics, without it would beimpossible to approve state-monopolist regulation. (Ossadtchaa 1975: 4)

At the same time Soviet economists recognized that Keynesians like Harrod and Domar hadunderstood the role of technological progress in economic growth and that Domar had

integrated demand and offer of production capacity. Domars dynamic model had overcomeKeyness static model by stressing that income growth is in function of investment growth(Ossadtchaa 1975: 48-9). From now on Soviet leading economists were not opposedanymore to theories on price elasticity and repartition. Not Keynes, but post-Keynesiansrepresented by Pierro Sraffa, Joan Robinson and Nicolas Kldor (the School of Cambridge)or Michal Kalecki obtained the favours of several Soviet economists. Since the late 1960sreformist Soviet economists were in two camps. The image of the Soviet economy as asingle factory was abandoned in 1970 in an article written by Petrakov inNovy Mir(Petrokov 1970).Aleksey Kosygin, the Prime Minister, had Leonid Abalkin among hisadvisers for incremental change, but the optimal planners were fighting for more radicalreforms. During the perestroika of Gorbachev they would become dominant. One could also

recognise in this move the result of a new thinking about economic planning in which pricemechanisms could play a role in adjusting supply and demand of the factors of production.Especially the New Economic Mechanisms of the Hungarian model had already gainedadherence of the economists of Novosibirsk. Most of these new economists were born in the1930s and were fluent in English. The were socialist reformers, which was not the casewith the younger generation educated by them. They established their own research institutesand think tanks outside the Soviet Academy system and led by Yegor Gaidar they becameneoliberals (Wagener 1-32).

References

Bljumin, I. (1948) Probleme der Vollbeschftigung in der gegenwrtigen englischenWirtschaftsliteratur, Sowjetwissenschaft, vol. 1, no. 2, pp. 40-52. (Originally published in

Mirovoe khozyaystvo i mirovaya politika, 1947, no. 4, pp. 81-8)

Besada Ramos, Benito (1981) Estudio critico de Teoria general de Keynes, LaHabana: Editorial de Ciencias Sociales.

Keynes, John Maynard (1920), The Economic Consequences of the Peace, London:Macmillan and Co., Limited.

(1925)A Short View of Russia, London: Published by Leonard & Virginia Woolf at

The Hogarth Press.

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__________ (1940)How to Pay for the War?A Radical Plan for the Chancellor of theExchequer, London: Macmillan.

Ossadtchaa, I. (1975) De Keynes synthse no-classique (tude critique),Moscow: ditions du Progrs.

Petrakov (1970) N. Ya Upravlenie ekonomiki i ekonomicheskie interesy,Novy Mir, no 8.

Trakhtenberg, A. I. (1954a) Kapitalisticheskoe voproizvodestvo i ekonomicheskie krizisy,Moscow: Gospolitizdat.

_____________ (1953, 1957) Osnovnye voprosy ekonomiki i politiki imperializma, Moscow:Gosudarstvennoe Izdatelstvo Politicheskoy Literatury.

______________ (1954b) Kredito-donesnaya kapitalizma posle Vtoroi Mirovoi Voiny,Moscow: Izd-vo A.N. S.S.S.R., Moscow: Institut Ekonomiki.

______________ (1956a) Keynesian theory of full employment, Keynesian Economies. ASymposium, Delhi: 211-15.

______________ (1956b) The basic laws and special features of economic crisis,New Age(New Delhi), vol. 6, no. 11: 16-40.

E. Varga (1944) Plans for currency stabilization, originally published in (War and Working Class) (Moscow), no. 13, pp. 3-10, English translation inCommercial and Financial Chronicle (New York), no. 4230, 2 March 1944, and TheCommunist, March 1944, pp. 282-3.

____________ (1957) Forum: The Common Market Plan. Contributions by E. Varga and P.Suslin,New Times, no. 10, pp. 11-15.

_____________ (1958) Problems of the Post-War Industrial Cycle and the New Crisis ofOverproduction, New York: International Arts and Sciences Press.

____________ (1959) The capitalist economy in 1958,New Times, no. 5, pp. 10-12.

____________ (1962) Trying to solve the insoluble,New Times, no. 32, pp. 4-7.

____________ (1962a) La production capitaliste au XXe sicle, Cahiers dhistoiremondiale. Journal of World History. Cuardenos de historia mundial, vol. 7, no. 1, pp. 195-211.

____________ (1962b) Twentieth Century Capitalism, Moscow: Foreign LanguagesPublishing House.

____________ (1964) E. Varga (UdSSR), in A. A. Arsumanjan and A. M. Rumjanzew(eds) Probleme des modernen Kapitalismus und die Arbeiterklasse. Materialien eines

Meinungsaustauches, der von der Zeitschrift Probleme des Friedens und des Sozialismus

und vom Institut fr Weltwirtschaft und internationale Beziehungen der Akademie derWissenschaften der UdSSR durchgefhrt wurde, Berlin: Dietz Verlag.

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____________ (1968) Politico-Economic Problems of Capitalism, Moscow: ProgressPublishers.

Wagener, Hans-Jrgen (1998) Between conformity and reform: economics under state

socialism and its transformation, in Hans-Jrgen Wagener (ed.)Economic Thought inCommunist and Post-Communist Europe, London and New York: Routledge, pp. 1-30.

andré mommen : the temptation of keynesianism

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