Int. Journal of Political Economy, vol. 29, no. 4, Winter 1999-2000, pp. 5-13. © 2001 M.E. Sharpe, Inc. All rights reserved.

ISSN 0891-1916 / 2001 $9.50 + 0.00.


The Limits of a Mixed Economy and the Accumulation of Capital in Our Times

Thirty years after the publication of Paul Mattick's extremely important book, Marx and Keynes: The Limits a/the Mixed Economy, 1 we are now able to examine its fundamental theses in light of subsequent economic developments. The central pillar of Mattick's book is clearly the idea that Keynesian fiscal policies of expansion of aggregate demand will encounter an intrinsic limit in the objective possibilities of valorization of capital. Contrary to Keynesian underconsumption common sense, according to which the profitability of capital and the consequent growth in overall production depend on the added demand created by public administration, the last thirty years have demonstrated that it is precisely the inverse relationship that in general dominates: the pattern over time of demand deriving from public spending depends on the returns from capital and on the capital accumulated on the basis of these profits. This basic relation is clearly demonstrated by economic growth in the 1970s, when Keynesian expansion, instead of lifting the international economy out of the almost absolute stagnation into which it had sunk, proceeded toward an inglorious finish, until it came to be ideologically perceived-together with its presumptive offspring, the public sector of the economy-as a cause of the world's economic problems.

English translation © 2001 M.E. Sharpe, Inc., from the Italian original, "I Limiti dell'Economia Mista e l' accumulazione di capitale dei giorni nostri." Translated by Michel Vale.

Paulo Giussani received a Ph.D. from the University of Kent (England) and taught for a number of years in various institutions in Europe and the United States. He is currently engaged in independent research on the relationship between productive and speculative capital (e-mail:




We might even say that Mattick was too kind to Keynesianism, inasmuch as later one was able to observe how a Keynesian creation of liquidity (e.g., in the 1970s) led to the formation of a solid basis for the tremendous speculative explosion in the following two decades. This development was not strictly predictable on the basis of Keynesian and neoclassical assumptions, which unlike classical theory have no explanation at all for speculative investment and which rather serve as a quite crucial case against Keynesianism, since the latter explicitly conceives and provides for an expansive fiscal policy as a fundamental weapon for avoiding the formation of unutilized liquid reserves, exactly the contrary to what took place in the 1970s.

The basic principle assumed by Mattick-for whom Keynesian policies have absolute limits--is the idea, set out in somewhat vague terms in Marx and Keynes and elsewhere, that productive expansion (the increment in the degree of utilization of the means of production and of labor power) contributes to an increase in production in physical terms but not in value or in monetary terms. In other words, additional production that results from an increase in public spending in the end raises the rate of utilization of fixed capital for the production of a greater quantity of nonreproductive goods, which therefore must be unproductively consumed in the next period, and paid for with the same quantity of money as in the preceding period.

Although the formulation is none too clear, Mattick here has captured an essential characteristic of expansionist policies of a Keynesian kind. Assuming that the added demand generated by the government is financed by pure monetary expansion through the monetization of the public debt, commodity circulation would find itself covered by an added quantity of fiat money, the general result of which would be a commensurate rise in prices. The effect would be to avoid, at least within certain limits, the occurrence of an acute crisis due to the absolute lack of soluble demand, leaving unchanged, however, the basic causes of the obstruction of the process of accumulation and growth, which have to do with the rate of valorization of invested capital. What would follow from this is a steadily less latent tendency toward a general stagnation of production, as once again the experience of the 1970s demonstrated.

The other conceivable mode of Keynesian fiscal expansion-deficit spending financed by public debt incurred on capital markets=-would likely produce an even more paradoxical effect: By avoiding an increase

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in the inflation rate, one is deprived of the only instrument capable of transforming an acute crisis into permanent stagnation, namely, raising the interest rate for a brief period and lowering the net (after-taxes) profit rate over a long period when money borrowed by the government is due to be paid back. The two deep recessions at the beginning and end of the 1980s were graphic examples of this.

Both Keynesian economic policy recipes-the first being the older and more naively radical one, the second spuriously adapted to present conditions (post-Keynesianism)-are critically discussed by Mattick in his book. Mattick very aptly stresses that it is crucial for Keynesian underconsumption ism to avoid attributing long-term economic crises (i.e., those in which the process of accumulation and growth are slowed) to the sphere of the rate of profit of capital, but rather to remain within the more general and abstract sphere of the relationship between effective demand and the production of commodities. Keynesianism has its roots in a conscious policy and not in the objective functioning of capitalism: a policy that allows civil servants, who naturally are backed up by their political gurus (to believe and make others believe) that they playa crucial role. Whatever form they may take and however wonderful may be their effects, the most one can conceivably say about episodes of Keynesian expansion is that they bring economic activity to a point approaching the optimum degree of utilization of productive capacity. But this fact alone will have no influence on the long-term course of the general rate of profit since the rate of utilization of productive capacity shows broad fluctuations around the long-term trend which, as we have said, is by and large constant.

However, the metaphysical confusion between the long and the short cycle, to which Keynesians have made an ample contribution, is truly great. The long cycle is conventionally defined as a cycle in which the stock of fixed capital is variable, while a short cycle is one in which the stock of fixed capital is constant. But if the stock of fixed capital is constant in the short cycle, this means that it must always be constant, since like any other element of capital, it is composed of goods that are produced and sold (and hence consumed) every day by capitalist concerns comprising huge branches of social production. If the economic system increases its rate of utilization of productive capacity (or of existing fixed capital), this implies that in the same period the production of additional fixed capital must increase owing to the greater employment of the production capacity in the sectors that produce the elements of fixed capital: ergo the goods that constitute fixed capital are acquired,


installed, and used, by and large productively, in all branches of the economy ... To imagine a short-term increase in the utilization of productive capacity that would leave the stock of productive capacity unchanged is a pure literary invention adopted for the sole reason of creating a theoretical space for economic policies based on the assumption-which though implicit is also quite evident and tacitly informs every Keynesian theoretical argumentthat fixed capital does not exist. 2 This latter hypothesis is diametrically opposed to the central hypothesis of classical Marxist theory, namely that fixed capital constitutes the absolutely crucial element of production, accumulation, and growth. Hence the study of fluctuations and economic crises in the short term is a totally underdeveloped field in classical Marxist political economy. But the observation of developments in the last eighty years, or ever since statistics worthy of the name have existed, and above all in the period after World War II, directly invites the conclusion that the phenomena of the long and the short cycles are inseparabJ y connected. From 1947 to 1973, the so-called golden age of capitalist development, when the highest annual average growth rate in the history of modem capitalism was recorded, recessions were very rare, mild, and not generalized. Between

] 974 and the present, when the average growth rate declined one-third relative to the preceding period, crises have occurred at an almost frenetic pace, accompanied by signs of growing financial fragility.

The galloping expansion that bridged the nineteenth and twentieth centuries, which appeared to end with World War I but was prolonged by a phase of speculative growth in the 1920s and which resumed in grand style in the post-war boom, required a long period of frightening upheavals in the world economy that ended only with World War II. In this context, the short Keynesian cycles are totally subject to the socalled long-cycle variables, which are the only true dynamic variables that constitute the biology of the existing economic system.

Mattick does not seem to share the bias, very widespread among Keynesians and more reasonably among those nostalgic for swinging London and the Roman dolce vita, according to which the golden age of capitalist development was a Keynesian epoch or a period in which Keynesian recipes for economic policy dominated, thus ensuring stable growth. Throughout the whole of the post-war period, the golden age was unequivocally the period that experienced the fewest interventions of the Keynesian variety, as will be clear from a glance at the pattern of deficit spending, which was almost zero, and the almost totally neutral fiscal policies applied.' The disaggregated statistical analysis showed

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long ago and for all countries of the OEeD area that the birth of the welfare state antedates by far the golden age, and that its development, arbitrarily considered a Keynesian copyright has, despite deceptive appearances, always been financed by contributions and taxes paid as a percentage of gross wages and not as a percentage of gross profits, which strips of any plausibility the idea of a Keynesian income redistribution realized or realizable by government policy.

As Mattick pertinently points out, World War II was the Keynesian period par excellence in modem economic history. This point of view seems reasonable in regard to both empirical evidence and theory. Among other things, what distinguishes World War II from every other period is that it was an epoch in which absolutely no accumulation of fixed capital occurred, since the latter was made utterly impossible by the reconversion of production to wartime purposes: the means of production and labor power that previously had produced plants, machinery, facilities, instruments, and so forth were used to produce nonreproductive consumer goods (weapons and military materiel in general).' The buildup of unused liquid reserves was neutralized by forced savings and tax increases intended for immediate use to finance military production, compounded by an immense growth in public deficit spending.' Only wars on a vast scale, or world wars, in which the state acquires sufficient coercive powers over the citizens and particularly over wage laborerssomething desired by Keynesians in particular and the Left in generalcan be powerful enough to force the economy and society into a type of totally unproductive and artificial accumulation. Moreover, the positive effect of the war on the prolonged growth in the succeeding period was the product not of the imaginary mechanism of Keynesian theory but of precisely the absence of such a mechanism, or rather of the total depletion of stock of productive capacity. By reducing the ratio between fixed capital and net product, together with the forced rise in the rate of utilization, the general rate of profit was raised to historically unprecedented levels, linking it to the accumulation of notable liquid reserves (forced debts) later available to finance the reconstitution of social fixed capital in order obviously to take advantage of the sky-high profit rate created.


Although Mattick does not examine in detail the monetary questions linked to Keynesianism and Marx's theory-which today have become


high fashion--some of his observations nevertheless merit consideration. Mattick is in particular one of the few modem authors that did not allow himself to be blinded by money and to understand that, however bizarre it may sound to the common sense of the "Left," money performs a passive function in Marxist theory. This sound conviction is indeed one of the points that induced Mattick to consider as illusory attempts at expansion undertaken by means of various kinds of monetary stimuli external to the process of accumulation. The idea that it is necessary to create artificial levers for economic growth, in itself inhibited, is the necessary premise for the virtual elimination, common to Keynesianism and neoclassical theory, of any effective difference between credit and money, a point which Mattick did not fail to point out. In effect, the drift from the old Keynesian fundamentalism-seasoned, if you will, with a vaguely laborite-libertarian progressivism-to a new, rigid, and neurotic post-Keynesianism, mostly in line with obscene psychopathologies of the Blairist-Dalemaist ilk, can be defined as a theoretical shift from a policy of expansion achieved through the creation of fiat government money to a policy of expansion to be implemented by the creation of reserves by the central bank in quantities corresponding to any level of general money credit generated by the banking system in response to the demand by capitalists for money capital.

Yet the problem has never been that of creating credit money but that of its return to the point of departure-a premise that of course does not hold for state fiat money, which is not subject to the process of return. The polemics among the supporters (standard neoc1assicals) of savings as a precondition for investment and the advocates (Keynesians) of investment as a cause of savings are quite amusing. This is quite crucial, for the econometric causal correlations valued by the former group always give primacy to savings, while those calculated by the latter must always give primacy to investment. Both consider the whole as if credit money were the only existing form of money, and accumulation through indebtedness to the credit system were the only possible form of investment. In reality, the sum total of money in the possession of capitalist firms is money in the strict sense, and an empirical study shows that the pattern of the rate of accumulation and of the ratio between investments and net output depends quite critically on the profits taken in, a considerable share of which involves the reutilization of funds generated internally-precisely as the classical economists and Marx theorized in their time. From this perspective, discussion of the relationship between in-

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vestment and saving as represented in standard statistics invariably ends up in tautological arguments and in vacuous discussions on the order of the question of the gender of angels."

The experience ofthe most recent years shows how spectacular a creditbased expansion without apparent limits can be. Since the early 1980s, and at supersonic speed in the 1990s, thanks, among other things, to the reserves created in the preceding decade, the forms of credit money and the institutions able to create it, along with the forms of credit and with almost no need for a high-powered reserve currency, have multiplied faster than rabbits. The result is an impressive growth of the mass of credit money without inflation in the prices of commodities (a point which totally demolishes the commonplace monetarist tautologies). The fact is that all this credit has gone and continues to go in very large measure to finance the parallel explosion of speculation (or inflation of the prices of nonreproducible goods and securities), a purpose for which it was aptly created, and in practically negligible measure to feed the accumulation of productive capital. What all this means is that the realization of post-Keynesian wishful thinking (more or less automatic adaptation of the creation of credit to demand) has produced precisely the general result that was the expressed purpose of the Keynesian ideology to avoid: the collapse of the economy into a purely parasitic and self-destructive dynamic.

It is useful at such a point to note the ironic aspects of the birth and death of ideological fashions. Post-Keynesianism, which is a Lamarckian adaptation of Keynesianism and progressive economists to the changed environment, has eliminated from among its set of instruments deficit spending financed by the monetization of the public debt. This is, on a purely imaginary level of course, the only policy that could plausibly and with any efficiency combat the speculative explosion in progress, and for just this reason it cannot be proposed: or rather, there are no listeners, nor could there be. The psychotic obsession of the media and of society with inflation has its origins in the circumstance that the tendency for the rate of inflation of prices of commodities to rise has the effect of depressing the inflation of securities prices, making both traditional speculation and speculation based on derivatives increasingly problematic. But no Keynesian or post-Keynesian has yet noticed or called attention to this quite elementary empirical fact, since that would abruptly force him into an unattractively naive position.

Although one cannot find in Mattick (nor should one expect to) details of the mechanism that will in the future certainly emerge to turn


capitalism back toward the nineteenth century, transforming it into a kind of living corpse, an economic Dracula which feeds on the blood of the living while waiting for a stake in the heart, there are phrases in Marx and Keynes which, when read at a distance of thirty years, sound like authentic prophecies now in the process of being fulfilled. Another merit of Paul Mattick is in fact that he made light of the illusions of a possible self-transformation of capitalism, or of its automatic transition, produced by completely extrinsic factors, into a nonmercantile system or one controlled by the producers.

The idea that the fundamental lever for overcoming capitalism is the power of the state-shared by Keynesians, Stalinists, and social democrats as well as by 99 percent of the extreme Left of the twentieth century-has fortunately disappeared altogether. The other ideological belief, that capitalism will convert itself spontaneously into a (quite undefined) different system of production and distribution is based on the assumption that capital is only one of the elements of society and not the only element on which society is based. All economies that preceded ours in human history (Asiatic, Germanic, slavery, feudalism) were made up of separate juxtaposed elements or were a union of different modes of production-one developed, the other embryonic. As they evolved, the most recent developed autonomously and suffocated the older element. Capital, on the other hand, admits nothing outside of itself: only so-called free time and/or the existence of persons who survive on the margins of society where they perform no economic function. It can therefore transform itself by going into decline, imploding, and withdrawing into itself without being able to generate spontaneously any other organism capable of taking its place. This process is no longer a mere hypothesis: present times have the good fortune to be able to observe almost dailyas if in vitro-what the foul officiants of the comical current ideology have the revolting impudence to label "modernization."


1. Paul Mattick, Marx and Keynes: The Limits of the Mixed Economy (Boston:

POI1er Sargent, 1969). .

2. All alleged Keynesian models of long-term growth, where the determinant factor is the accumulation of fixed capital, are doomed to set aside typical Keynesian features to become very similar to the classical theory, as is shown by the two wellknown growth models worked out by Nicholas Kaldor.

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3. It is sometimes argued that our golden age has been a wholly exceptional period in terms of growth over the course of modern economic history and that our contemporary long-term stagnation is rather the norm. Nonetheless, this viewpoint should not be taken too seriously for two main reasons. First, our sufficiently reliable statistical series only starts with World War II. Second, the confrontation between historically different phases of capitalist development is conceptually flawed. In the nineteenth century a large share of social production was still in a precapitalist state (e.g., petty agriculture) and was not developing (growing) at all. This can explain why the historical narrative of a very impetuous industrial growth seems to clash with data exhibiting rather modest rates of growth. Where we have industrial statistics by sector (e.g., for U.S. industrial production), the nineteenth century shows rates of growth higher than those for our postwar golden age.

4. Keynesian theory does not love investment, that is, accumulation. Keynes himself conceives of accumulation only as a residual that is rendered more and more necessary to fill the gap created by the tendentially declining propensity for consumption out of net income. Yet, the realizationlunderconsumption paradigm (of which Keynes' theory is just one variant), unable to explain the mechanism engendering (cyclically or perpetually) a divergence between social demand and social product, is forced to switch to a lower level of thought, where capital investments merely become more volatile than (unproductive) consumption, which must then be supported from outside in order to preserve a stable growth path with full employment of all productive resources. Two powerful objections can be raised against this hypothesis. Empirically, one can observe that the rate of economic growth is clearly positively associated with tendentially increasing rates of accumulation (1896-1913; 1947-1973). Logically, the relative expansion of unproductive consumption must imply a reduction in net profits, which tends to shrink the basis for accumulation and makes capital investment even more volatile ifit is viewed as a function of the volume and the rate of profit. The overall logical effect should be that of making necessary tendentially rising doses of the Keynesian remedy up to the point where accumulation is wholly replaced by unproductive expenditures, a mechanism whose most powerful practical example is the economy of war.

5. The NSDAP and the German National Socialist government hosted a small group of enthusiasts of Keynes's General Theory. This group believed that it had found good theoretical justification to their economic policy. Some of these NSDAPKeynesians were so in love with Keynes's theory that they tried to entice Adolf Hitler to read the book. Hitler apologized, asserting that he was "incompetent in these technical matters" and that "politics rules anyway and not economics."

6. The circumstance that money seems to originate from and within the credit system through the mere creation of bank deposits means little and affords no mystical power to the formation of bank credit. Credit money becomes money only when nonbank economic agents (i.e., the capitalists) accept it as means of circulation and/or payment, thereby giving birth to its circulation. Once a given amount of money originating from bank credit is tranferred to a second capitalist in exchange for commodities and then placed anew into another bank account, credit is no longer money but money tout court (i.e., a certificate enabling the owner of the account to withdraw higher-powered money from the banker, who in turn is a mere money manager in relation to the capitalist).

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