The Fall of the Keynesian State - I
Internationally
Obvious Signs of Growing
Difficulties
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Decline in US trade balance, trend from
surplus to deficit, deficit emerged Spring 1971
Persistent US balance of payments deficit,
export of capital as US provided dollars to
world
End result: abandonment of fixed exchange
rates, August 15, 1971 ($ unhooked from gold)
Less Obvious Worrisome Trends
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Shift from “dollar scarcity” to “dollar glut”
Increasing speculation against fixed exchange
rates
Debate over future of international monetary
system
Growing conflict over US ownership/influence
in Europe
Discuss each in turn
“Dollar Scarcity” to “Dollar Glut”
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A shift in the nature of the international liquidity
problem took place
Dollar provided liquidity in early post-WWII, but ...
Growth in European & Japanese economies
 rapid growth in international trade
 increased need for dollars
 “Dollar scarcity”
But in dollars >  trade  int’l inflation
So Europeans had to use monetary policy to neutralize
dollars
Increasing Speculation
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Speculation against exchange rate changes
Result of rapid growth of Eurodollar market
(and later Asian dollar market)
Result of rapid growth of multinational
corporations (MNCs), both industrial &
financial
Result of conflicts between US & Allies
– when conflict flared up, markets were destabilized
– with consistent conflict  instability of expectations
Debate over Future of IMS
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French vs Americans
– Jacques Rueff wanted 3X  gold price
– US opposed, would undercut allies

Some economists proposed flexible rates
– supposedly automatic adjustment
– experience suggested increased instability

Hybrid solutions
– crawling peg (small regular changes)
– creation of int’l money (e.g., SDRs)
Growing Conflict US-EU
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Servan-Scriber’s book, The American
Challenge
Stanford School said: differential liquidity
preferences
– US less interested in liquidity, wants long
term assets
– Europeans want more liquidity, e.g., dollars
Vietnam War expenditures   US dollars,
inflation in world at large
Social Roots
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Behind these international problems and
confrontations lay domestic social conflicts
within each country
Conflicts put constraints on foreign policy
Conflicts pushed foreign policy in particular
directions
See next section, primary example will be US
--END--
The Fall of the Keynesian State II
National Level
Beneath the International Crises:
local economic problems

Beneath exchange rate instability
– we find rapid growth of Eurodollar holdings

Beneath excessive liquidity
– we find chronic US bal of pay deficits caused by increased
captial flows abroad and  trade surplus

Beneath increased capital investment abroad
– we find reluctance to invest at home

Beneath declining trade surpluses
– we find accelerating US inflation
Beneath cont’d

Beneath accelerating inflation we find
– an accomodating monetary policy
– a growing federal budget deficit
– wage growth outstripping productivity growth

Beneath accomodating monetary policy&
budget
– we find Vietnam War & War on Poverty

Beneath wage  > productivity 
– we find new labor militancy (auto, coal, public
employ)
Beneath cont’d

Beneath slowing productivity growth
– we find growing refusal to work
– increased alienation & resistance to new technology
– shift from manufacturing to services
» linked to women’s refusal of patriarchy, nuclear family

Beneath the Vietnam war
– we find peasant refusal of development
– we find student refusal of sacrifice in suspicious
cause
» linked to student refusal of discipline in education
» linked to refusal of patriarchy & racism
Beneath cont’d

Beneath the Great Society
– we find the urban uprisings of the mid-60s
– we find human capital investments

Beneath the urban uprisings
– we find the Civil Rights Movement
– we find the Black Power Movement

Beneath these movements
– we find the revolt against racism, unemployment,
low wages, ghettoization of Keynesian period
Social Roots of Crisis - I
“Viewed from Above”
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Some have seen roots of inflation in crisis of democracy,
but “crisis” = “excess” for him
Decline in formal voting,  ticket splitting
 protests, demos, alternative forms of political action
1960s: more demands for Govt “benefits”
  demands produced “welfare shift”, 
expenditures
  minus taxes = deficit + accom.$ policy = inflation
Top Down Cont’d
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 respect for govt, authority, wealth, hierachy
– function of change in values, fx demographic change
Thus  polarization, disintegration of “governing
coallition”
All produced decline in authority & prestige of
governing coalition’s representative: the president
– from Truman & his Wall Street lawyers to
Johnson/Nixon resignations
Verdict: behind inflation lies excess of democracy
Social Roots of Crisis - II
Viewed from Below
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But analysis of these things can differ
instead of demographics, one can see social conflict
instead of excess of democracy, a cycle of struggle
not just “youth”, but a recomposition of social forces
which gained power to contest effectively
not just simultaneity of demands, but circulation of
struggle from sector to sector, unwaged to waged
Blacks in streets to blacks & whites in auto factories
Refusal of patriarchy in home to refusal of authority in
schools, etc
Historical Sketch - I
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Labor resistance to productivity deals in 50s
Growing black resistance: Civil Rights, then Black
Power Central City Riots & Welfare Rights
Great Society programs aimed at “unionizing” and
stabilizing ghettos
But Federal programs financed struggle instead of
control
Welfare struggles, like “riots”, sought decoupling of
wage from work
Refusal of work can be seen to follow from rising real
wages because real w and leisure time are complements
Historical Sketch - II
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

New waves of struggle appropriated old themes &
culture of insubordination and freedom from
exploitation
Examples can be found in music
E.g., the song “Which Side Are you On”
Capitalist Response

Counterattack: National
– Nixon’s wage-price freeze
– Pay board (w/ unions in the
state)
– Labor-Management
Committees
– Industrial restructuring

at international level
– End of Bretton Woods
– Food &oil price attacks on
real wages
– etc (rest of this course deals
with what follows)
--END--
The Fall of the Keynesian State - II
National Level
Focus of Discussion
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Focus on underlying social/national dimensions of the
crisis of the Keynesian state
Reading: S. Huntington’s essay on the “Crisis of
Democracy” (mainstream political scientist, TC)
Reading: P. Carpignano, “Class composition in the
1960s” (Italian radical sociologist)
Reading: G. Caffentzis, “Throwing Away the Ladder”
(Professor of Philosophy, Univ of Southern Maine)
Reading: M. Montano: “Notes on the International
Crisis”(student radical, whereabouts unknown)
Beneath the International Crises:
local economic problems

Beneath exchange rate instability
– we find rapid growth of Eurodollar holdings

Beneath excessive liquidity
– we find chronic US bal of pay deficits caused by increased
captial flows abroad and  trade surplus

Beneath increased capital investment abroad
– we find reluctance to invest at home

Beneath declining trade surpluses
– we find accelerating US inflation
Beneath cont’d

Beneath accelerating inflation we find
– an accomodating monetary policy
– a growing federal budget deficit
– wage growth outstripping productivity growth

Beneath accomodating monetary policy& budget
– we find Vietnam War & War on Poverty

Beneath wage  > productivity 
– we find new labor militancy (auto, coal, public employ)
Beneath cont’d

Beneath slowing productivity growth
– we find growing refusal to work
– increased alienation & resistance to new technology
– shift from manufacturing to services
» linked to women’s refusal of patriarchy, nuclear family

Beneath the Vietnam war
– we find peasant refusal of development
– we find student refusal of sacrifice in suspicious cause
» linked to student refusal of discipline in education
» linked to refusal of patriarchy & racism
Beneath cont’d

Beneath the Great Society
– we find the urban uprisings of the mid-60s
– we find human capital investments

Beneath the urban uprisings
– we find the Civil Rights Movement
– we find the Black Power Movement

Beneath these movements
– we find the revolt against racism, unemployment, low
wages, ghettoization of Keynesian period
Social Roots of Crisis - I
“Viewed from Above”





Huntington sees roots of inflation in crisis of democracy,
but “crisis” = “excess” for him
Decline in formal voting,  ticket splitting
 protests, demos, alternative forms of political action
Huntington evokes James Madison on need for “balance”
between governability & democracy
1960s: more demands for Govt “benefits”
  demands produced “welfare shift”,  expenditures
  minus taxes = deficit + accom.$ policy = inflation
Top Down Cont’d




 respect for govt, authority, wealth, hierachy
– function of change in values, fx demographic change
Thus  polarization, disintegration of “governing
coallition”
All produced decline in authority & prestige of
governing coalition’s representative: the president
– from Truman & his Wall Street lawyers to
Johnson/Nixon resignations
Verdict: behind inflation lies excess of democracy
Social Roots of Crisis - II
Viewed from Below


Three articles from Zerowork express radical
perspective from the core of what Huntington calls an
excess of democracy
Yet there is a parallelism to the analyses
– both recognize politics behind economics
– both attribute the crisis to upsurge in grassroots
struggle
– both recognize existence of permanant anatagonism
Differences
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

But analysis of these things differ
instead of demographics, ZW authors see class struggle
instead of excess of democracy, a cycle of struggle
not just “youth”, but a recomposition of the whole class
which gained power to contest effectively
not just simultaneity of demands, but circulation of
struggle from sector to sector, unwaged to waged
Blacks in streets to blacks & whites in auto factories
Refusal of patriarchy in home to refusal of authority in
schools, etc
Historical Sketch - I






Labor resistance to productivity deals in 50s
Growing black resistance: Civil Rights, then Black Power
Central City Riots & Welfare Rights
Great Society programs aimed at “unionizing” and
stabilizing ghettos
But Federal programs financed struggle instead of control
Welfare struggles, like “riots”, sought decoupling of wage
from work
Refusal of work can be seen to follow from rising real
wages because real w and leisure time are complements
Historical Sketch - II



New waves of struggle appropriated old themes & culture
of insubordination and freedom from exploitation
Examples can be found in music
E.g., the song “Which Side Are you On”
Capitalist Response

Counterattack: National
– Nixon’s wage-price freeze
– Pay board (w/ unions in the
state)
– Labor-Management
Committees
– Industrial restructuring

at international level
– End of Bretton Woods
– Food &oil price attacks on real
wages
– etc (rest of this course deals
with what follows)
