"Keynes' whole thing was based on the underconsumption/underpayment dimension of Marx's analysis. By getting the government to increase effective demand, he was targetting underconsumption to lessen the crises."
And I'll leave aside whether this is a distorted reading of Keynes.
I see that I am going to have repeat myself. I agree that govt orders created the 'effective demand' that the capitalisation of surplus value as additional constant and variable capital would have itself engendered if surplus value had not been short or production insufficiently profitable to sustain the expanded reproduction of capital.
That idle surplus value which was not capitalized was (and often is) then borrowed by the govt to increase production which it in fact did though that capital was destroyed, no matter the profits made by individual contractors, since no new consumer and capital good commodities were created thereby.
(Due to its role as reserve currency, the US govt may uniquely be able not simply to borrow idle money but to simply create lotsa of money to expand govt orders or in the case of Vietnam war military spending--if convertability is suspended--and allow the inflationary surplus of dollars to be accumulated by foreigners who may simply use it to buy pricey oil or purchase dollar demonimated assets; this magical creation of demand seems to be linchpin of the entire world economy presently and if the US seriously reins it it in--through higher reserve requirements?--to prevent a run on the greenback, overproduction may catastropically rise abroad, so it seems that either a run on the dollar or mounting overproduction will catapult the world into global catastrophe. Presently no one wants a run on the dollar; hence the general global agreement not to dump dollar denominated assets, so we Americans get to enjoy these last days as the last superpower and marvel at our stock market and its salubrious effects on our consumption and investment and bewail the marginalization of the mass of humanity).
Back to my main story.. It is true that the income created by such govt production may have assisted--aside from expanding the public sector that Max takes as a good in itself--in the realization of commodity capital that was already produced but lay idle (as inventories or unused machinery) due to the interruption that can quickly become a vicious deflationary spiral in the accumulation process from the shortage of surplus value.
This sort of 'multplier' effect can be sustained by piling on national debt that will eventually be understood by capital to be a future compounding source of the problem of the shortage of surplus value due to the state taxes or borrowing needed to relieve it. This means the state debt will be reined in (EU through the 60% Maastrict criteria, US through bipartisan agreement) or it will provoke further pessisism about future borrowing costs or tax increases (Japan)
As for this underconsumption, I think our disagreement is fundamental: you are arguing that general crises happen due to a consumer buy-back problem, underconsumption or overexploitation (and I don't think this theory can explain the cyclical nature of accumulation or the dynamics of how crises are overcome which is not deny the existence of exploitation); I am saying that they are overcome only through capital's achievement of an even higher rate of exploitation since the old one no longer sufficed with the growth of the value composition in the course of accumulation to yield the mass of surplus value necessary for expanded reproduction. We are agreed that there must be a forcible reduction of constant capital in value terms as well so that VCC is again conducive to capital accumulation. Eventually this (barbarism) will be the only way that overproduction or underconsumption will be overcome --short of a workers' revolution (socialism).
Yours, Rakesh