Beyond Boom and Crash
Readers of The New York Review are familiar with Professor Heilbroner’s style—the wide sweep, the eloquence, the sharp, original observations. This little book, enlarged from an article in The New Yorker, should spread his influence further.
“Another worldwide crisis of capitalism is upon us,” he begins. “From its earliest days, capitalism has always been as critically ill as it has been intensely alive. ‘Convulsions’ and ‘revulsions,’ as the older political economists called them, ‘crises,’ as Marx identified them, ‘recessions’ and ‘depressions,’ in modern economic language, have been as prominent features of capitalist development as its dizzying succession of technical advances, its enormous material productivity, its irresistible global expansion.”
Marx saw both the growth and the instability of capitalism as rooted in its central mechanism—the process by which businessmen use money to hire labor and buy materials, organize production of commodities to sell for more money, and then use more money to hire more labor and organize more production. At each stage in the threefold circuit there may be a breakdown. Perpetual, smooth growth is found only in economic textbooks, not in historical experience.
Here Heilbroner’s exposition is rather vague and loosely argued. He naturally has not much use for Keynes’s theory of “effective demand,” especially as he must have encountered it in the emasculated version taught in North America, but he might have profited by the insight of Michal Kalecki,1 himself a Marxist, who discovered the same theory independently and used it to make the Marxian concept of the “realization of the surplus” more precise.
When the dust of controversy has settled, the principle of effective demand is seen to be simple and obvious. In a modern economy, there is very little activity, except housework, for our own consumption. Everyone depends on money income in order to live, and money income depends upon the money expenditure of other people. For ordinary households, expenditure (say, over a month) cannot exceed income but it may fall short of it—there may be saving to provide for future contingencies or to add permanently to wealth.
Similarly, a business does not immediately expend the whole of its gross profits (the excess of receipts over current costs) but uses part to pay off debts or to amass reserves. Thus for the overall flow of income to expand, or even to be maintained, there must be some expenditure this month that is not derived from last month’s income. The booster to expenditure comes from loans (from banks or from issues of securities) or from activating balances saved in the past.
For national income as a whole, the main boosters are (1) the deficits of government and local authorities (that is, excess of current expenditure over receipts from taxation, rents, etc.); (2) the investment that industry makes to enlarge future productive capacity over and above what is financed out of retained profits; (3) consumers’ investment, especially in housing, financed by loans or hire purchase; and (4) finally, the balance of trade, which is a booster when…
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