Rakesh Bhandari bhandari at phoenix.Princeton.EDU
Sat Feb 20 15:36:38 PST 1999

Doug wrote:

>But Keynes also thought capital investment was the motor of the system, and
>believed that stimulating the animal spirits of entrepreneurs or having a
>state investment board take their place if they're too scared or gloomy to
>do the job was the whole point of economic policymaking.

Mario Cogoy, a disciple of Paul Mattick, agrees that this is true of Keynes but not the left Keynesians. He writes:

"However, Keynes did pose the problem correctly, and understood that fluctuations in the national income are to be understood primarily from the standpoint of demand for capital and *not from that of the demand for consumer goods.* If income consists of consumption and savings, disruptions of the economic cycle can be expected not from the consumption side of the system but from the capital side, from the difficulties of transforming savings into investments. "Thus it is no advance on Keynes at all to interpret his theory, as Joan Robinson does, as a theory of underconsumption. According to Robinson, the rate of investment depends on the rate of profit, and the latter in turn on the demand for consumer goods. Since the demand for consumer goods is limited in general by the level of wages, there must be some point beyond which the production of consumer goods can grow no further. When this point is reached, the demand for means of production will decline, so that a crisis will set in owing to insufficient ineffective demand. But even such an argument explains nothing. Its main thrust is to separate the sphere of production from the spehere of consumption and then to attempt to situate the problem in the latter. . In reality, demand in a capitalist society can no other origin than capital accumulation. Accumulatin includes not only the demand for the means of production, but also demand for consumer goods, since the latter is nothing more than a result of the sale of labor power and has its origin in the reproduction and accumulation of variable capital. To say that profit is determined by the scale of consumption is to set the problem on its head; under capitalism consumption depends on profit and not profit on consumption. Since demand can only arise from capital expansion, it is always constituted by constant and variable capital"

In International Journal of Political Economy, vol 17, no 2 (Summer 1987). I can't read the page number but it's in "The Theory of Value and State Spending" chapter.


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