The Rise of the Keynesian State - I
Nationally
“Keynesian” State
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The term “Keynesian” derives
from the name of the
economist John Maynard
Keynes
Keynes developed an
economic theory of the
planning state for active
government intervention
Even when policy makers
were not consciously
Keynesian, his theory
dominated policy for 30 years
As Keynesian policies failed in
the late 1960s both the
Keynesian state & his theories
entered crisis
Keynesian “State”
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“State” usually understood as “nation” state
 i.e.,
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national government
But “state” can be understood more broadly
 governments,
plus
 set of all institutions organizing a particular social
order
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Keynesian “state” exists at several levels:
 sub-national
(regional, muncipal)
 national
 supra-national
Elements of Analysis in this Section
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Historical Sketch of Emergence & Development
Social & political character of Rise
See how “economic” is rooted in social &
political
See how “economic” is social & political
Prelude & Source:
Great Depression
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Great Depression = crisis of earlier order
Earlier order involved:
 Business
cycle as growth regulator
 Taylorism, Fordism to control labor
 Repression of trade unions
 More limited government regulation of economy
 More laissez-faire
 Quasi-gold standard (at int’l level)
Business Cycle as Regulator
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when wage  exceeded  of productivity,
profits dropped (often generated financial
crisis)
business cut back on I   total output
downturn  increased unemployment
 downward pressure on wages
 restoration of profits, investment & growth
Crisis of Business Cycle
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In Great Depression downturn didn’t produce
an upturn
Downturn produced Stock Market Crash of ‘29
Economic activity & prices fell, stayed down
Unemployment rose dramatically, stayed high
Wages fell, but increased profits din’t raise I
Investment fells, stayed down
Behind Persistence of Depression
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Depth of unemployment despair
Generated a collective refusal of suffering due
to impersonal forces
Rise of new form of labor organization
 waged
labor forms industrial unions, CIO
 unwaged, unemployed demand support
unemployment compensation to finance adjustment
 social security in face of financial collapse
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New demands for full employment, rising
wages
Capitalist Adaptation - I
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At the level of theory: Keynes
 From
classical view of wages as cost
 To understanding that both wages & profits can 
  wages =costs but also  demand
  pressure for I to raise productivity and reduce
costs
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Economic theory extended to social sphere
 e.g.,
human capital theory, growth theory
 provided logic for investment in education, R&D,
welfare, etc.
Capitalist Adaptation - II
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At the level of policy:
New Social Compact
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Progressive response (unlike
Nazis, Stalinists)
Accepted unions, imposed
bargaining,  wages
Subsidized I to
productivity (WWII+)
Strict financial regulation (to
avoid crises)
Socialization of adjustment
costs in UI & Social Security
Capitalist Adaptation - III
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Post-war gifts of productive
assets to private industry
Full Employment Act of 1946
Fordist production, fordist
education
Restoration of patriarchal
nuclear family
Racial hierarchy on job and
off (ghetoization)
Cold War, Point IV
Capitalist Adaptation - IV
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Post-1950s investment in
education & central
cities
Post Sputnik Space Race
Civil Rights Act
Peace Corps & Vista
Green Berets
Cuban Missle Crisis
Bay of Pigs
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The Rise of the Keynesian State II
Internationally
Preoccupations of US Policy
Makers, During & After WWII
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Planning for reconstruction of world order
began during WWII,
Before resolution of war was clear
Basis was Keynesianism rather than Nazism or
Stalinism (assuming the Allies won)
Primary Aim: Stability for trade & investment
Stability
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Stability desired vis à vis instability of Great Depression
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Depression, int’l circulation of depression
breakdown in gold standard & int’l trade
Controls on capital flows
Defaults on int’l debts
Stability desired vis à vis WWII
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Disruption of int’l trade
Disruption of int’l investment
No Going Back
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Refusal to return to Gold Standard
Refusal of Free Markets in Currencies
Refusal of Keyne’s proposal for int’l currency
to be regulated by independent global central
bank
Solutions:
Economic & Political
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Bretton Woods Agreements: fixed exchange rates
national foreign exchange reserves
 International Monetary Fund (pool of reserves)
 Keynesian Nation state handles adjustment
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GATT toward free trade
Free mobility of capital (for investment)
United Nations (to avoid war & foster int’l cooperation)
Implementation
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US occupation and re-engineering of management of
Germany & Japan, e.g., land reform & union busting
Marshall Plan in Europe as a whole
Emergence of multinational corporation as major
vehicle of int’l investment
Replacement of colonial empires being torn by
independence movements
Pax Americana & nation/elite building
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