SELECTED ESSAYS ON THE DYNAMICS OF THE CAPITALIST ECONOMY 1933-1970 MICHAL KALECKI CAMBRIDGE UNIVERSITY PRESSPART ILL 12. POLITICAL ASPECTS OF FULL EMPLOYMENT [ 1949 J ‘The maintenance of fall employment through government spending financed by loans has been widely discussed in recent ‘years. This dscunion, however, has concentrated on the purely ‘economic aspects ofthe problem without paying due considera- tion to political eats. The astumption that a Government ‘will maintain fll employment ina capitalist economy i t only knows how to do it fallacious, In this connection the mise sivings of big business about maintenance of fll employment by Government spending are of paramount importance. ‘Tis attaude wat shown larly in the great depression inthe thirties, ‘when big business opposed consstenly experiments for int creasing employment by Government spending in all counties, ‘eseept Nast Germany. The attvode is not eary to explain, Glearty higher output and employment benefit, aot only workers, but businessmen as well, because ther profits sie ‘And the policy af full employment based on losn financed Government spending does not encroach upon profits Because itdoes not involve any ational taxation. ‘The businessmen in theslump are lenging fara boom; why donot they accept gladly the ‘synthetic’ boom which the Government is able to offer them? Itis this dificult and fascinating question wih whieh we {intend to deal in this are 198 Political aspects 1, The reasons forthe opposition ofthe industrial Tenders to fall employment achieved by Government spending may be subdivided into thees categoria: () the dike of Government interference in the problem of employment as such: (i) the “ike of the direction af Government spending (public invest- ment and subsidising consumption) i) ditke ofthe social and polieal changes reiting from the mainte of full employ= tment. We shall examine each of these thee categories of objee- tions to the Government expansion policy in detail 2. We shall dea fist withthe reluctance ofthe “captains of industry” to accept Government intervention in the matter of ‘employment. Every widening of Stat activity is looked upon by “usiness" with suspicion, but the eration of employment by Government spending has a special arpect which makes the ‘opposition particularly intense. Under a lisereire sytem the 1 level of employment depends to a great extent on the so-called state of confidence, this deteriorates, private investment ectnes, which results na fall of output and employment (bot direc and through the secondary effect ofthe fall in incomes ‘upon consumption and investment). This gives othe capitals « powerfil indirect contol ver Government policy everything which may shake the state of confidence must be earefilly avoided because i would eausean economic ers. But once the Government learns the trick of increasing employment by its] ¢ ‘own purchases, this powerful contoling device lees it fc tiveness, Hence budget deficits necasary to carry out Gover reat intervention must be regarded a8 perilous. ‘The social fanction ofthe doctrine of ‘sound financo” sto make the level of employment dependent on the ‘state of confidence’. ) g- The dike of the busines leaders of a Government spending policy grows even mare acute when they come to consider the objet on which the money would be spent: public investment and aubsiising mass connimption. ‘The economic principles of Government intervention require 139 eSDynamics of capitalist economy that public investment should be confined to objects which do fot compete with the equipment of private busines, eg hospitals schools, highway, ete. Otherwise the profitability ot private investment might be impaired and the postive effect of public inveiment upon employment offiet by the negative elect of the decline in private investment. This conception suits dhe business men very wel. But the scope of public invest- ‘ment of this type is rather narrow, and there is a danger that the Government, in parsing this policy, may eventvally he tempted to natonalise wansport or publi utes so a8 t0 ain a new sphere in which o carry out investment} ‘One might therefore expect busines leaders ad Ueir experts to be more in favour of subidising mass connption (by means ‘of family allowances, subsidies to keep down the prices of necesitis, etc) than of public investment; for by subsiding consumption the Government wold not be embarking on any tort of ‘enterprise’ In practice, however, this isnot the case Indeed, subsiding mass consumption is much more violently ‘opposed by these ‘experts’ than public investment. For ere a ['moral” principle ofthe highest importance is at stake. The 1 |fendamentals of capitalist ethics require that “You shall earn Jyour bread in sweat’—unles you happen to have private 4, Wehave considered the political reasons for the opposition agiinst the policy of ereating employment by Goverament spending, But even if his opposition were overcomne—ast may well be under the pressure of te masscr—the maiienane ofall [employment would cause social and politcal changes which 1 | would give a new impetus © the opposition of the business leaders. Indeed, under regime of permanent fll employment, “the sack" would ceae to pla itsrole as adseplinary measure ‘The socal position of the bos would be undermined and the {shot be tnd ere ttt ns ail nec cae [occ neni lett ae ea 140 Political aspects self assurance and class consciousness ofthe working class would row. Strikes for wage increases and improvements in condi tions of work would ereate political tension. Its tue that pro- fits would be higher under a regime of fll employment than they are on the average under aise; and even the rise in wage rates resulting om the stronger bargaining power ofthe workers i let likely to reduce profits than to increase prices and thus affects adverely only the renter inerets. But “dseip- Fine in the factories" and “poitieal stability” are more appre clated by the busines leaders than profits, Their clas instinct tells them that lasting fall employment is unsound from their Polat of view and dat unemployment an integral part of the normal eapitalie sytem + One ofthe important Runetions of fascism, as typified by the Nazi system, was to remove the capitalist objections to fall ‘employment. ‘The disike of Government spending policy ai such is over= ‘come under fascism by the fact that the State machinery ie under the direct contol ofa partnership of big busines with fascist ‘upstars. The necesty forthe myth of ‘sound finance’ which served to prevent the Government fom offeiting a confidence criss by spending, is removed. In a democracy one dors not know what the next Government will be like. Under fascism there & no next Government ‘The dike of Government spending, whether om public Investment or consumption, ig overcome by concentrating (Government expeae oe a | Sco ey eene eee ee pence eee tee Sian ere eee ae ofc cope Spe aa ne a ae InDaynamies of capitalist economy Large-scale armaments are inseparable from the expansion of the armed forees and the preparation of plans fora war of conquest. They alo induce competitive rearmament of other counties. This cautes the main aim of the spending to shift gradually from full employment to securing the maximum fect of rearmament. The renting scarcity of resources leads to the curtailment of consumption ae compared with what it could have boen under ful employment. ‘The fascist system starts fom the overcoming of unemploy- ‘ment, develops into an ‘armament economy" of warty, and ‘ends inevitably in war. 1. Win: whe te rt enone ofthe opption to {it eipymen by Gorrct cng” in capt aemory? We sal yt ame geen on the as Sl ibenot he seas ors opaton ic noon Tgp ssoe), Wesngued hat wey npn te open «Be ike tnt on he planes teppei on 4 ince gum Goverment guage bg Sci the cposton gi dig bing ere citer tas persia reo the ‘noni theca enewepeesofeomw egy var iting mas commpn e ppenton 4S natn fal ployment dnt mey preeng Sp aod engl sone Now in ened hat he agen hich he “basi son de? cs sto oped nnd of Gor ten nerves oan ap ara mater ft |p The nul ating met eden he amy 1 en yt of one yao wht oul 4 ‘be the direction of Government intervention in the slump, and ‘gay, evel hdl be aed ely ane Sanpete permanent il cooymen starr aos the ren there emeges sin ad in he omen of orang the amp oy 142 Political aspects vimlsting jbl invent. This may be done by lowering ] the rate of intrest, by the reduction of income tax, or by subsiising private invetment diceely inthis or anther fren, ‘That such a scheme should be attractive to “busines” isnot ‘dence inte poltial situation he wl ot be bribed nto nee toent. And the jatervention doe not vole the Government citer in“ playing with” (pul) investment or wasting money" on subsiding connumpton. Te may be shown, however thatthe stimulation of private invert dow ot roridc an adequns metiod presenta sss ncrploysent There are two ateratives to be cone Sitaed hee: fs reduced therply in the slomp and ineesed in he boom Ta tis ee both the period andthe ample ofthe busines cycle wil be reduced, bt eanployment not ony in the sump Be cten inthe boom may be far fom Tl ie the average CBemployment may be eoniderable alough ts Muctation wl be lew marked (0) The rte of nterat or income tx ‘ele ins slump but mt increased inthe sbxequent boom, Th tha cae the boom wl lat lnger Dut it mun end ina cw ttanp! ene Sebecon ia heat of integrin a Set not of cou SORA ters which case oral Hv {tats in capitalist economy. inthe new sup i wl be, econ fo reduce he rat of meres or fncome again and ton, Ths ita oo rect ie the ete iter would) have to be negative an income ta would hae tobe replaced bbyanincome subsidy. Thesame woud ari were attempted toma fll employment by simulating private investment: thera inte an nae a wold hae 1 e eee | ‘atmo weakness of combating practical dficalty. The reaction of businessmen tothe measures Aescrbed ix uncertain. Ifthe down-awing is sharp they may M43 3) The rate of interest or income tax—or both— 4Dynamics of capitalist economy take a very pesimistic view of the Future and the reduction of the rate of interest or income tax may then fora long time hhave lite or no effect upon investment, and thus upon the level of output and employment, 4. Even those who advocate stimulating private investment 4o counteract the sump fequenly donot rely on it exchsvely Dut envisage tha itshould be asociated with public investment. ‘Te looks at present as if"busines leaders" and their experts at least part of them—would tend to accept a a fis allr public ‘expenditure financed by borrowing ae & means of alleviating slumps. They seem, however sll tbe consistently opposed creating employment by subsiding consumption and to main. aining fall employment. Tuas, or even vithoat i public investment anced by borrowing wil be undertakes to pre | vent large-scale unemployment/But if atiemp are made to "ppl this method inorder omsintain te hig evel of employ | mene reached in the asbrequent oon a strong opposition of “Bosines leader" i Hkely to be encountered) Al hs already | been argued, ising fall employment is not at all to thelt | tking. The workers would "get out of hand’ and Ue ‘captains Findustry” would be amaous to “each them a legon™. Mores ‘over, the pre inetease inthe up-ning iw ue disadvantage pa tis makes the "boom red” Tn thi situation acpierfl loc likely to be formed be- { tween ig busines and the rae interest, and they would probably ind more than one economist to declare that the Sitvaton was manifestly unsound. ‘The presure ofall thoe {ores and in parca of tg business would mest prob | induce the Goverment w ru to the orthodox pole of cutting down the badget deft. A sup would follow in | which Goverament spending policy would come again ate ‘This pattern of a “political busines cycle’ is not ently 4 Political aspects conjectural; something very much lke that happened in the USS.A. in 1997-8. The breakdown ofthe boom in the second half of 1957 was actually de to the drastic reduction of the ‘budget deficit. On the other hand, in the acute sump that followed, the Government promptly reverted tm spending paley