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Listen Keynesians, It’s the System! Response to Palley

John Bellamy Foster (jfoster [at] is editor of Monthly Review, professor of sociology at the University of Oregon, and author (with Fred Magdoff) of The Great Financial Crisis (Monthly Review Press, 2009). Robert W. McChesney (rwmcches [at] is Gutgsell Endowed Professor of Communications at the University of Illinois at Urbana-Champaign, and author of The Political Economy of Media (Monthly Review Press, 2008) and (with John Nichols) The Death and Life of American Journalism (2010).

Thomas I. Palley sent John Bellamy Foster this article in October 2009 for publication in Monthly Review, accompanied by the following note: “I’m hoping it might provoke some discussion and also generate some dialogue and consensus between Marxists (like yourself) and structural Keynesians (like myself).” Palley’s piece addressed (along with much else) the article “Monopoly-Finance Capital and the Paradox of Accumulation” by John Bellamy Foster and Robert W. McChesney in the October 2009 issue of Monthly Review. In the same spirit of promoting dialogue between Marxists and Keynesians on the present crisis, we agreed to publish his contribution, together with the following response by Foster and McChesney, in this issue of MR.

The Editors

The Problem

In an article entitled “Listen, Keynesians!,” published in January 1983 in Monthly Review, Harry Magdoff and Paul Sweezy argued that the radical break that John Maynard Keynes’s General Theory of Employment, Interest and Money (1936) represented for orthodox economics lay in the fact that “For the first time the possibility was frankly faced, indeed placed at the very center of the analysis, that breakdowns of the accumulation process, the heart and soul of economic growth, might be built into the system and non-self correcting.”1

Sweezy made “Listen, Keynesians!” the basis for his contribution to the Keynes centennial meeting of economists at Hofstra University later that same year (a meeting that also included such luminaries as James Tobin, John Kenneth Galbraith, Dudley Dillard, and John Eatwell).2 For Sweezy, the early 1980s were a time of renewed economic stagnation, the rise of supply-side economics (the very antithesis of Keynes’s views), and the emergence of new contradictions, such as financialization. It was therefore high time that the remaining Keynesians returned to the central problem raised by Keynes himself, of an underlying contradiction in the capital-accumulation process, leading to a strong stagnation tendency.3

Sweezy was a Marxist economist, but one who had also been influenced by the Keynesian revolution at its inception, embracing some of the more radical conclusions of Keynes’s economics, which he believed fit well within a Marxian political and ideological framework.4 It was possible, he argued, to be both a socialist and an orthodox Keynesian—as in the case of Joan Robinson, Keynes’s younger colleague at Cambridge University and one of the foremost economists of her day, who frequently wrote for Monthly Review. As Joseph Schumpeter said of Keynes’s early followers, “most orthodox Keynesians are ‘radicals’ in one sense or another”—although the same could not be claimed, he added, for Keynes himself.5

“In Britain and the United States, the Keynesians are far better trained and equipped technically…than Marxist economists,” Sweezy wrote in 1946, “and as matters stand now there is no doubt at all about which group can learn more from the other.” While extolling the virtues of orthodox Keynesianism, Sweezy was clear on its failings. Keynes “completely ignores the problems of monopoly” and “ignores technological change.” Most fatally, Keynes internalized “the major unspoken premise…that capitalism is the only possible form of civilized society.”6

Sweezy and Monthly Review’s criticism of Keynesian economics increased in the postwar generation, as what Robinson termed “bastard Keynsianism” became the order of the day for mainstream economics and policymakers from Harry Truman to Richard Nixon.7 This sanitized version of Keynsianism dropped much of the concern with inequality and social spending, and regarded Keynes as providing a toolkit of government policies to manipulate the short-term business cycle and thereby avoid recession and inflation. In the United States, this meant, in practice, “military Keynesianism.” Bastard Keynesians proclaimed that, with smart government policies, the system would work beautifully. The stagflation of the 1970s demolished this belief and left establishment Keynesianism largely discredited. In mainstream discourse, it increasingly was framed as the cause of capitalism’s growth problems, not the cure.

“Listen, Keynesians!” by Magdoff and Sweezy constituted a call for those Keynesians who might still be true to Keynes’s own way of thinking, to return to his central point that the capital accumulation or savings-and-investment process at the heart of the capitalist economy was flawed. Moreover, it was necessary, they argued, ultimately to go beyond Keynes himself to recognize that today’s mature, stagnating economy, increasingly supported by the growth of debt-leveraged speculation, was a system beyond repair.

In November 1982, only two months before the publication of “Listen, Keynesians!,” Magdoff and Sweezy had pointed out in “Financial Instability: Where Will it All End?” that the question as to whether a major financial crisis (on the scale of 1929) could propel the economy into a deep downturn, approaching the scale of the Great Depression of the 1930s, was still an open one. They were responding here to Hyman Minsky, a proud Keynesian (albeit with socialist leanings), “whose views,” they claimed, were “especially worthy of attention precisely because over the years he has been the American economist who has done more than any other to focus on the crucially important destabilizing role of the financial system in advanced capitalist countries.” Magdoff and Sweezy agreed that Minsky’s argument in his 1982 Challenge article “Can ‘It’ Happen Again?” in which he suggested that it was now unlikely that a financial crisis would lead to a deep depression as in the 1930s (due to the Federal Reserve Board’s lender of last resort function and high government deficits) was a “powerful one.” Yet they contended that Minsky tended to treat “the domestic U.S. economy…in abstraction from the vast and vastly complicated international economy [and international financial realm] of which in fact it forms a tightly integrated part.” The exclusive focus on U.S. conditions in Minsky’s argument failed to take into account the nature of the world interbank market. Hence, it failed to consider the fact that financial weaknesses emerging in any particular nation or region could have a contagious effect, quickly spreading to the entire global system. This posed the possibility that the Federal Reserve (or the central banks of the leading capitalist countries working in tandem) would be unable to act with the speed and on the scale necessary. For this reason, Magdoff and Sweezy contended, the possibility of the capitalist economy succumbing to a serious “debt-deflation depression” was still one to be taken seriously.

Should we assume that the growing financial weakness of the economy will culminate, as it has so many times in the past, in a panic followed by a debt-deflation depression of the kind that overwhelmed world capitalism in the early 1930s? Or have the institutional changes of the post-Second World War period immunized the system against the recurrence of such a catastrophe?

History alone, of course, will provide definite answers to these questions. But in the meantime it is possible to advance a plausible case for either the optimistic or the pessimistic view. The argument from past experience, never to be lightly dismissed, certainly points to the likelihood, even if not the certainty, of a crash so severe as to defy efforts at control during a painful and possibly protracted deflationary process. We ourselves have always leaned to the view that this is the most probable outcome of the kind of deeply ingrained financial weakening of the economy we are now witnessing.8

Still, such warnings fell on deaf ears. Those economists still generally working in Keynes’s own tradition, like Tobin, Galbraith, and Minsky—who understood that capitalism did not naturally tend toward full employment—remained committed to the idea that an active state could stabilize the system, removing its worst irrationalities. The great majority of economists, however, had abandoned Keynes altogether along with the need for affirmative government and had returned under one mantle or another, to the pre-Keynesian belief in the automatically equilibrating capitalist market economy. Keynes was relegated to a “special case” (as Schumpeter had declared) related to periods, now viewed as impossible, of deep depression.9 The question “Can ‘It’ Happen Again?” which Minsky asked, and Magdoff and Sweezy gave a qualified Yes to, was generally dismissed as no longer even worth raising.

Today, more than a quarter of a century later, the failures of the capitalist economy and capitalist economics raised by Magdoff and Sweezy in “Listen, Keynesians!” are still with us. The freefall of the economy associated with the Great Recession has revealed the impoverishment of mainstream economics, which not only was unable to foresee such a crisis, but also relied on models that excluded it as a possibility, along with economic stagnation in general.

An example of how far economics had descended by the end of the twentieth century and the beginning of the twenty-first was that Paul Krugman, widely regarded as a leading Keynesian, declared in the late 1990s, in a polemical attack on what he called “Vulgar Keynesians,” that “if you want a simple model for predicting the unemployment rate in the United States over the next few years, here it is: It will be what Greenspan wants it to be, plus or minus a random error reflecting the fact that he is not quite God….The obvious (to me) point that the average unemployment rate over the next ten years will be what the Fed wants it to be…never made it into the public consciousness.”10 Yet the decade (1998-2007) that Krugman so confidently forecast, in disdain of “vulgar Keynesians,” as “what the Fed wants it to be,” was to be one of stagnant growth and a double-bubble economy (bolstered also by unending wars in Afghanistan and Iraq), culminating in the Great Financial Crisis and the Great Recession!

In his ill-timed 2007 introduction to a new edition of Keynes’s General Theory, Krugman was to insist that Keynes was “wrong” about the direction of the modern economy, mistaking “an episode for a trend,” since lack of effective demand, ultra-low interest rates, a declining marginal efficiency of capital under conditions of industrial maturity, and a financial crisis involving a serious debt-deflation depression had not been experienced (except in Japan) in the post-Great Depression era up until then—and were nowhere in sight (or even conceivable) in the U.S. or European context. Keynes, according to Krugman, had been right in his day that the world economy was in severe trouble. But economists had learned that “all it took to get the economy going again was a surprisingly narrow, technical fix,” and hence monumental crises or depressions in the advanced economies were a thing of the past.11

The Return of Marx and Keynes

This intellectual default of orthodox economics meant that those seeking answers in the face of the economic freefall of the last few years were forced to reach out beyond the increasingly narrow confines of economic orthodoxy—to Keynes himself, and beyond him, to Minsky’s heterodox theory of financial instability. Many dubbed the financial crash of 2008 a “Minsky Moment.”12 Moreover, at the same time as some turned back to Keynes, others turned to Marx and his more fundamental critique of capitalism. And, just as Keynes and Marx are now sometimes conjoined in the minds of those trying to understand the current economic mess, so increasingly are the heterodox theories of Minsky and Magdoff and Sweezy juxtaposed, representing the Keynesian and Marxian sides of the attempt to understand the financial contradictions of capitalism.13

It is this which, in our opinion, makes Thomas Palley’s article, “The Limits of Minsky’s Financial Instability Hypothesis as an Explanation of the Crisis,” and his interest in opening up a dialogue on these matters with Monthly Review, so interesting and important.14 Palley is a genuine Keynesian economist (i.e., operating within the tradition of Keynes himself), attempting to extend Minsky’s theory of financial instability in order to account for the current economic malaise. For Palley, like Keynes and Minsky, the capital-accumulation process is flawed, but is not beyond repair. Rather the state, he argues, should intervene and institute a true Keynesian approach—a position he refers to as “structural Keynesianism.” The causes of financial instability and stagnation can therefore be traced, in Palley’s view, not so much to capitalism itself, as to the unfortunate anti-Keynesian nature of neoliberal economic policy.

Our own perspective is different. The root problem, as we see it, is not neoliberalism but capitalism itself. Neoliberalism (the economics of Hayek, Friedman, etc.) did not emerge as a dark conspiracy to drag capitalism from high growth rates and vibrancy; it became the orthodoxy when the system was in tatters in the 1970s, and when (bastard) Keynesianism was the establishment doctrine in disrepute. The choice before nations in that decade of crisis was to turn sharply to the left and go beyond existing monopoly capitalism to some variant of socialism, or turn hard right.

What room there might have been at one time—and even then inscribed within the larger domination of center-over-periphery in the world economy—for a genuine Keynesianism, associated with social democracy of the Scandinavian variety is, in our view, now gone. The deepening stagnation of the mature, monopolistic economy, and the growth of financialization in an attempt to leverage up the system, represent the failure of the capital accumulation process at the system’s rotting center. The capitalist system as a whole is approaching its historic limits and needs to be transcended if the real needs of humanity (and the earth) are to be addressed.

In order to understand how and why these divergences in perspective between ourselves and Palley arise, it is useful to look first at the differences in outlook represented by Minsky and Magdoff and Sweezy in relation to financialization and stagnation, and then at the more fundamental differences with respect to capitalism as a mode of production that separate the worlds of Keynes and Marx. These issues are not confined to the abstruse realms of theory, but have immense practical implications.

Minsky and Magdoff-Sweezy

Palley sees the work of Minsky as the key to unlocking the puzzle of the greatest financial and economic crisis since the Great Depression. Minsky’s financial instability hypothesis argued that the financial structure of the advanced capitalist economy has a fundamental flaw, present in every business cycle, driving it inexorably from robustness to fragility, leading to periodic financial crises or credit crunches. Two things, Minsky argued, prevented capitalism from generating a major debt deflation, as in the Great Depression: (1) the role of the Federal Reserve Board (along with the central banks of the other leading capitalist countries) as lenders of last resort; and (2) big government deficits, inevitably rising in a crisis due to shortfalls in revenue, that tend to bolster the economy and the financial system. Nevertheless, continuing financial instability was such that it periodically required active state intervention to “stabilize an unstable economy.”15 It is such periods of financial crisis and needed government intervention that have recently been dubbed “Minsky moments.”

One difficulty of Minsky’s analysis is that, while it excelled all others in depicting the cyclical nature of financial crises, it was much less clear as to how this related, if at all, to the long-term economic trend. Minsky, although obviously aware that financial volatility was becoming more and more a reality, did not examine the long-term growth of finance—actual empirical studies were rare in his work—and hence he did not develop what could be called a theory of the “financialization” of the economy, i.e., the shift in the center of gravity of the economy from production to finance. Nor did he deal with the question of stagnation, i.e., the slowing down of the capitalist economy at the center of the system, which for Magdoff and Sweezy constituted the explanation for the shift to finance. Following the 1987 stock market crash, Minsky did suggest that “once again capitalism has changed,” evolving into a new phase of “money manager capitalism” more prone to financial crises. This was, however, never developed into a coherent analysis.16

This lack of a theory of financialization as a long-run trend, along with Minsky’s repeated contention that a debt deflation resembling the 1930s would mostly likely not occur again (due to big government and the lender of last resort mechanism), have been the main stumbling blocks for those seeking to apply his model to the Great Financial Crash and Great Recession of the last few years. At the same time, the fact that Minsky’s financial instability hypothesis was seen almost entirely as a short-term, cyclical phenomenon, presenting the problem of a “Minsky moment” and not as a developing trend, has likely served to make his analysis more acceptable to establishment theorists—who are concerned above all with demonstrating that the economy will soon rebound with a little push from the state.

Palley seeks to overcome this absence of a developed economic-trend analysis in Minsky by pointing to what he calls a “super-Minsky cycle” that operates for perhaps decades. The super-Minsky cycle, according to Palley, has to do with the long-run breakdown of the institutional structure of financial regulation, which is part of the financialization process. Bank regulations and regulations on financial institutions in general are more and more relaxed, the further the economy gets form the last major crisis. This, then, generates a progressively weaker financial architecture, increasing the amplitude of financial risk in each successive “basic” cycle. This leads eventually to a point in which the lender of last resort function of the central bank can no longer manage the situation, resulting in a debt deflation. The only answer, then, is to reestablish financial regulations as part of a general Keynesian reflation of the economy.17

We have found no evidence of what Palley calls a “super-Minsky cycle” in Minsky’s work itself. Indeed, the very empirical reality of such a “cycle” is in doubt, since the long-term increase in financial profits that we have seen in recent decades is unprecedented in the history of capitalism.18 The 1991 article by Piero Ferri and Minsky that Palley cites in this respect makes no mention of such a “super-cycle,” and is, in fact, aimed at explaining why endogenously generated financial crises do not normally lead to “explosive” conclusions, due to “homeostatic mechanisms” referred to as “thwarting systems.”19

In an analysis that thus goes logically beyond what Minsky himself argued, Palley claims that, in recent years, “the Minsky super-cycle” gradually eroded the thwarting institutions that protected the system, thereby allowing for the development of the housing bubble (including the excesses of subprime mortgage lending, collateral debt obligations, credit default swaps, etc.) as well as its eventual collapse.

Nevertheless, it is important to recognize, in response to this super-cycle argument, that the continuous and steady rise in the share of financial profits since the late 1970s is unprecedented in the United States or elsewhere. And a cycle with only one phase is not a cycle.

Having converted Minsky somewhat dubiously into a theorist of a financial long wave, Palley nonetheless claims that Minsky’s analysis focuses “exclusively on financial markets,” lacking a well-worked-out relation between production (“the real economy”) and finance. Palley attempts to fill this gap with a “structural Keynesian” argument, focusing on how neoliberal capitalism altered the relation between production and finance, through a class-based redistribution of income and wealth, benefitting those at the top (involving both wage stagnation and hyper profits), a related shortage of effective demand, and the fueling of the neoliberal economy by debt buildup and asset inflation. Coupled with the “super-Minsky cycle” in which thwarting mechanisms to financial speculation are removed, this led, accordingly to Palley, to the disastrous crash of 2008. In this view, neoliberalism appears to be the primary cause of both financialization and stagnation. With finance in crisis, “stagnation,” he claims, “is the logical next step of the neoliberal model given current conditions.” Indeed, financialization “explains why the neoliberal growth model was able to avoid stagnation for so long.”20

For Palley, the answer to all of this is quite clear: “reverse neoliberalism and restore the link between wages and productivity growth.” His general approach in this regard can be seen as the main focus of progressive-oriented economists. It is a view that also has great influence among progressives in general.

Magdoff and Sweezy’s analysis of financial instability, in contrast to that of Minsky, was never concerned primarily with business cycle fluctuations (although they followed these closely), but rather with the long-run process of an expanding “financial superstructure,” as they called it, on top of a stagnating productive base—a process described by Sweezy as “the financialization of the capital accumulation process.”21 Although they discussed financial crises as they emerged, and the tendency to remove financial regulations and to allow greater risk—along with the development of more exotic financial products to meet the unending demand for these products coming from capital stuck in a condition of overaccumulation—the real point of their argument was directed elsewhere: at how financial expansion promoted economic growth, without overcoming the underlying stagnation problems of the system.22

The contradictions displayed by today’s economy in this perspective thus go far beyond neoliberal economic policy or a “super-Minsky cycle.” As explained numerous times in Monthly Review, the underlying problem of accumulation in the advanced economies today is one of a deep-seated stagnation tendency arising from a high degree of monopoly (oligopoly) and industrial maturity. More actual and potential economic surplus is generated than can be easily or profitably absorbed by consumption and investment, pulling the economy down into a slow growth state. As a result, accumulation becomes increasingly dependent on special stimulative factors. Historically, over the entire post-Second World War period, the most persistent of these have been military spending, the sales effort, and the growth of debt-leveraged speculation (i.e., financialization)—and increasingly it is this last that has carried most of the weight. As the economy has slowed down, decade by decade, since the 1960s, the financialization of the economy has grown by leaps and bounds, tending to lift an accumulation process weighted down by overcapacity, but at the cost of worsening financial crises.

Stagnation has nonetheless continually reasserted itself; most recently in the Great Recession following the financial bust. Since the only feasible means of restarting the accumulation process at this point is renewed financialization, the state at present is actively pursuing this strategy (supported by a capitalist class more and more geared to asset appreciation through speculation)—even after the worst financial-economic crisis since the 1930s. Thus, the stage is set for bigger financial bubbles that will burst in the end, pulling the economy back down again. This can be described as the stagnation-financialization trap.23

Our own argument, which was derived from that of Magdoff and Sweezy (and Marx), suggests that the fault lies in capitalism itself, and not in neoliberalism, which merely stands for economic policy most conducive to today’s monopoly-finance capital (or the era of financialized monopoly capital). The financialization of the capital accumulation process was a response to a deep tendency to economic stagnation rooted in the development of the monopoly stage of capitalism. Capital, faced with a shortfall of profitable investment opportunities, sought refuge increasingly in financial speculation made possible (as Minsky repeatedly noted) by the era of big government and big banks. Consequently, if stagnation was the chief contradiction of monopoly capital proper, this has now evolved into the twofold contradiction of stagnation-financialization under the phase of monopoly-finance capital. No change in economic policy is possible under the system at this point. In this view, neoliberalism would appear to be here with us more or less permanently, as long as the stagnation problem lasts, since it is itself a reflection of the stagnation-financialization trap that characterizes the age of monopoly-finance capital. There is no “super-Minsky cycle” that leads to a super-Minsky recovery; no meaningful “structural Keynesian” response to the crisis; no turning back the clock to a lost Keynesian “golden age.” The fault is in the system.

Marx versus Keynes

Marxian economic theory has, of course, sometimes been associated with a “breakdown theory” perspective—although we would argue that this has never been the main thrust of the Marxian approach. Keynes too has sometimes been seen as pointing to economic breakdown. As Schumpeter put it,

With Marx, capitalist evolution issues into breakdown. With J.S. Mill, it issues into a stationary state that works without hitches. With Keynes, it issues into a stationary state that constantly threatens to break down. Though Keynes’s “breakdown theory” is quite different from Marx’s, it has an important feature in common with the latter: in both theories, the breakdown is motivated by causes inherent to the working of the economic engine, not by the action of factors external to it. This feature naturally qualifies Keynes’s theory for the role of “rationalizer” of anti-capitalist volition.24

Some fundamentalist Marxian political economists continue to adhere—in our view, mistakenly, given changed conditions—to Marx’s theory of the tendential law of the rate of profit to fall due to rising organic composition, which was directly applicable in the nineteenth century but not in the twentieth. Part of the reason for clinging to such views (which were not, however, prominent in Marxian economics until the 1970s) no doubt has to do with the way in which it is commonly interpreted as an absolute economic “breakdown theory,” which appears to justify a revolutionary politics as a mechanical, even automatic, response. For many, the classical falling rate of profit theory seems immune to reformist politics and should be advanced precisely for that reason. Thus, Rick Kuhn, who recently received the Isaac and Tamara Deutscher Memorial Prize for his book Henryk Grossman and the Recovery of Marxism, strongly emphasizes the importance of the classical Marxian tendential law of the falling rate of profit as a “breakdown theory” of capitalism (à la Grossman); using this notion to distinguish it from Marxian analyses impacted by the Keynesian revolution, and thus of an allegedly more “reformist” nature. As Kuhn himself states, “The logic of his [Grossman’s] theory of breakdown is still self-evidently anathema to those committed to a reformist path to socialism, let alone proponents of a stable and humane capitalism.”25

Yet, although it is reasonable to talk today of a partial breakdown of the accumulation process under conditions of monopoly capital and industrial maturity, no absolute economic breakdown of the system is to be expected. The most likely prospect (outside of global environmental collapse or nuclear holocaust) is one of long-run economic stagnation in the advanced capitalist economies, coupled with continuing financial instability, heavy military spending (and war), a growing sales effort, etc. The system “issues into a stationary state that constantly threatens to break down” but never really does, since stagnation can continue more or less indefinitely, even with growing hardship for those at the bottom of society. Such conditions are likely to last, and indeed worsen—absent effective political organization with the aim of putting the economy and society on a new, more egalitarian and sustainable, i.e., socialist, foundation.

This assessment does not reflect an “underconsumptionist” argument on our part, as Palley suggests, but rather an overaccumulationist one.26 Indeed, we stress the fact that it is the accumulation, or savings-and-investment process, that is the problem. Simple promotion of higher wages or income redistribution will, no doubt, provide some welcome relief to a portion of society—to the very limited extent that this can be achieved within the system—but such measures will not solve the underlying problem. Much more revolutionary social changes are needed. Palley’s radical “structural Keynesian” position, which lies in the tradition of orthodox Keynesianism and argues for something like a new New Deal as the ultimate solution, is one that we cannot accept in full, simply because it excludes the root problem: the accumulation of capital itself.27

Realism and Revolution

Were the story to stop here, this would be a relatively minor reprise of an old debate. But, to the contrary, we believe the importance of the dialogue between Monthly Review and Palley, and between Marxists and structural Keynesians, is more valuable today than at any time in decades. It is not merely helping each side tighten its analysis and understanding of the crisis. There is a popular political awakening to the crisis that is of the utmost importance to our futures. In these political struggles, on virtually every tangible issue at the present moment in history, socialists and structural Keynesians, such as Palley, will undoubtedly battle as close allies. In the advanced capitalist state, it is not the transition to socialism that is on the immediate horizon as a political possibility, but something like a new New Deal—perhaps even conceived in a more radical way. Recall that Keynes offered various prescriptions for the failures of the capital-accumulation process, such as: increased state spending on civilian goods, a radical redistribution of income, a “somewhat comprehensive socialisation of investment,” a “euthanasia of the rentier,” and a degree of national planning. There is no denying that, for the vast majority of what could be called “the left” in the United States, this is the immediate economic agenda.

Keynes (like Palley today) clearly thought such measures feasible within the system. On this, however, we concur with Sweezy, who stated that Keynes was “dead wrong.” Measures such as the “somewhat comprehensive socialisation of investment” and the “euthanasia of the rentier,” not to mention a truly radical income and wealth redistribution, are “totally antithetical to the political and ideological structure of the society and would never get through without a very basic change in the nature of the society.”28

We believe, in time, as the political struggle deepens, this will become increasingly clear. The solution to the accumulation crisis (and to the wider problems of social and environmental devastation, and militarism and imperialism, attributable to the system) requires the eventual replacement of capitalism with a system more attuned to equality and sustainability, if our species is going to have much of a future. How this process will occur is unclear and cannot be predicted from past experience; we must be humble and open-minded. Palley, we suspect, is convinced that the system will prove malleable, and capitalism will prove compatible with a humane and egalitarian social order. We respectfully disagree. This is a debate that must be continued and that will be revisited in the months and years to come.

In the meantime, genuine progressives have important work to do together.


  1. Harry Magdoff and Paul M. Sweezy, “Listen, Keynesians!” Monthly Review 34, no. 8 (January 1983), 1-11.
  2. See Howard Wattel, ed., The Policy Consequences of John Maynard Keynes (London: Macmillan, 1985).
  3. The issue of stagnation and the financial explosion was raised in Sweezy’s article “Why Stagnation?” (Monthly Review 34, no. 2 [June 1982], 1-10, referred to in “Listen, Keynesians!” See also Magdoff and Sweezy’s book from this period, Stagnation and the Financial Explosion (New York: Monthly Review Press, 1987).
  4. Paul M. Sweezy, Interview in David C. Colander and Harry Landreth, eds., The Coming of Keynesianism to America (Brookfield, Vermont: Edward Elgar, 1996), 84.
  5. Joseph A. Schumpeter, Ten Great Economists (New York: Oxford University Press, 1965), 288-89.
  6. Paul M. Sweezy, The Present as History (New York: Monthly Review Press, 1953), 253-62. The argument on monopoly and stagnation that Paul Baran and Paul Sweezy developed in Monopoly Capital (New York: Monthly Review Press, 1966) had less to do with Keynes than with the work of the Polish economist Michal Kalecki, who developed the main breakthroughs associated with the “Keynesian revolution” independently of and before Keynes, based on his knowledge of Marxian economics.
  7. Joan Robinson, “Review of Money, Trade and Economic Growth by J. G. Johnson,” Economic Journal 72, no. 287 (September 1962), 690-92; Lynn Turgeon, Bastard Keynesianism (Westport, Conn.: Greenwood, 1996).
  8. Harry Magdoff and Paul M. Sweezy, “Financial Instability: Where Will It All End?” Monthly Review 34, no. 6 (November 1982), 18-23 (reprinted in this issue). This was not the first time that they had addressed Minsky’s work. See Harry Magdoff and Paul M. Sweezy, The End of Prosperity (New York: Monthly Review Press, 1977), 133-36. Minsky’s article was reprinted in Can “It” Happen Again? (Armonk, New York: M.E. Sharpe, 1982).
  9. Joseph Schumpeter, Ten Great Economists, 286.
  10. Paul Krugman, The Accidental Theorist (New York: Norton, 1998), 31.
  11. Paul Krugman, “Introduction to the New Edition,” in John Maynard Keynes, The General Theory of Employment, Interest and Money (New York: Palgrave Macmillan, 2007), xxxiv-xxxviii.
  12. Cassidy, How Markets Fail (New York: Farrar, Strauss and Giroux, 2009), 205-06.
  13. See, for example, Cassidy, How Markets Fail, 215-17; Ricardo Bellofiore and Joseph Halevi, “Magdoff-Sweezy and Minsky on the Real Subsumption of Labour to Finance,” forthcoming in V. Tavasci and J. Toporowski, eds., Minsky, Financial Development and Crises (London: Palgrave, 2010),; John Bellamy Foster and Fred Magdoff, The Great Financial Crisis (New York: Monthly Review Press, 2009), 17-21.
  14. Thomas Palley, “The Limits of Minsky’s Financial Instability Hypothesis as an Explanation of the Crisis,” Monthly Review 61, no. 11 (April 2010).
  15. Hyman P. Minsky, Stabilizing an Unstable Economy (New York: McGraw Hill, 2008).
  16. Hyman Minsky, “Financial Crises and the Evolution of Capitalism,” in M. Gottdiener, ed., Capitalist Development and Crisis Theory (New York: St. Martin’s Press, 1989), 391-403.
  17. Palley, “The Limits of Minsky’s Financial Instability Hypothesis”; Thomas Palley, “A Theory of Minsky Super-Cycles and Financial Crises,” Macroeconomic Policy Institute, Hans Böckler Stiftung,
  18. No such disproportionate growth of financial profits is recorded in the years prior to the 1929 stock market crash. See Solomon Fabricant, “Recent Corporate Profits in the United States,” National Bureau of Economic Research, Bulletin 50 (April 1934), table 3.
  19. Piero Ferri and Hyman P. Minsky, “Market Processes and Thwarting Systems,” Structural Change and Economic Dynamics 3, no. 1 (1992), 79-91.
  20. There is also an international trade and job offshoring part of Palley’s argument that we have chosen not to address here.
  21. Paul M. Sweezy, “More (or Less) on Globalization,” Monthly Review 49, no. 4 (September 1997), 149.
  22. Palley claims, unreasonably in our view, that Magdoff and Sweezy “recognized the significance of debt but they failed to recognize the ability of the financial system to keep expanding the supply of credit.” As support, he cites pieces that they wrote in 1978! Financialization was only then in its early stages, and they continued to write up to the late 1990s on the financial explosion and the means by which credit was expanded.
  23. See John Bellamy Foster and Robert W. McChesney, “Monopoly-Finance Capital and the Paradox of Accumulation,” Monthly Review 61, no. 5 (October 2009), 1-20.
  24. Schumpeter, Ten Great Economists, 283-84.
  25. Rick Kuhn, “Economic Crisis and the Responsibility of Socialists,” International Socialist Review 68 (November-December 2009, online edition),, and Henryk Grossman and the Recovery of Marxism (Urbana: University of Illinois Press, 2007), 124-48. On the breakdown theory controversy, see Paul M. Sweezy, The Theory of Capitalist Development (New York: Monthly Review Press, 1942), 190-213. For discussions of Marx’s falling rate of profit tendency (due to rising organic composition), see Paul M. Sweezy, Four Lectures on Marxism (New York: Monthly Review Press, 1989), 46-54, and Michael A. Lebowitz, Following Marx (Boston: Brill, 2009), 103-56.
  26. On underconsumption versus overaccumulation, see John Bellamy Foster, The Theory of Monopoly Capitalism (New York: Monthly Review Press, 1986), 75-93. The term “underconsumption” was sometimes used in the early Keynesian era in referring to all theories of the “non-spending” (or shortage of effective demand) type. But this usage is no longer common. See Joseph A. Schumpeter, A History of Economic Analysis (New York: Oxford University Press, 1954), 740n.
  27. See John Bellamy Foster and Robert W. McChesney, “A New New Deal Under Obama?” Monthly Review 60, no. 9 (February 2009), 1-11.
  28. Keynes, The General Theory, 372-81; Sweezy, Interview in Colander and Landreth, The Coming of Keynesianism to America, 83.
2010, Volume 61, Issue 11 (April)

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