To What Extent Can the Post-war Boom Be Attributed to Keynesianism - Essay Example

To What Extent Can the Post-War Boom be attributed to Keynesianism To What Extent Can the Post-War Boom be attributed to Keynesianism? Introduction Keynesianism cannot be directly held responsible for occurrence of prolonged post-war boom (Moody, 2013, 1). However, there is a strong interrelationship between Keynesianism and post war boom, which was illustrated by the five recessions. Moreover, there was adoption of Keynesian stimulus, which was aimed at cutting recessions short based on a comparison of similar recessions that had occurred in 1920s and 30s. Nevertheless, the long post war boom was caused by destruction of capital, which occurred during the war, thereby leading to the rise of America as a hegemonic power. On the other hand, the notion indicating that post war boom was caused by destruction of capital is doubtful, since this was not the case after World War I (Moody, 2013, 1). Instead, the period after First World War was attributed to a long wave of downturn, which dragged for the period between 1920s and 30s. In addition, during this period, there was no economic hegemony in Britain by the end of nineteenth century; in fact, Germany and America was losing followed by Japan. In this case, the notion that destruction of capital contributed to growth that established an interrelationship between post-war boom and Keynesian theory. In fact, the reminiscent of Keynesian ideas indicate that growth is created through destruction of capital in order to offer employment for people to rebuild. USSR had trouble in growing their economy during the 1920s due to physical destruction of their capital in the First World War; thus, they were forced to seek a replacement (Fine & Murphin, 1984, 56). On the other hand, Marxists value theory argues that growth is facilitated by destruction of value rather than capital destruction. Furthermore, the theory argues that people can utilize devalues capital in a way that produces exchange and surplus value. The possibility of growing economies without capital because of destruction or non-existence, Upper Volta would have been more developed than America. However, this is not the case given that societies devote significant portions of their social labour in order to reproduce capital that grows slowly or fails to grow (Moody, 2013, 1). In this case, Marxists value theory is disapproved, thereby creating the need to explore the Keynesian theory. Therefore, the paper will focus on identifying the extent to which that post war boom can be attributed to the Keynesianism. The post-war boom Initially, post-war boom was based on overview of `Fordist methods, which regard to mass production of consumer goods and relation to the steel power and machine tool industries. Moreover, America established the new form of Fordist production during the 1920s, though it was introduced in Europe during the post war boom (Clarke, 1988, 174). In fact, this continued to expand through the depression that occurred in 1930s, despite increases in the rate of unemployment and living standards. Furthermore, the growth experienced in the industries was restricted through limitations of market size and the barriers of protectionists were establishing constraints in domestic market. There was a significant expansion of the new industries due to complexity military demands during World War II, whereby there were vehicles, aviation and electronics. On the other hand, during the post-war period there was a reconversion of various military branches dealing with production to peacetime environment in Britain. However, there were stringent restrictions involved in civilian consumption, whereby the world market was subdued by Britain. Moreover, Britain’s growth faced challenges due to the power of supplies, steel and labour. The post war period is also attributed to a Korean War spread, and methods of production to Continental Europe. During the post war boom there was a Dodge Plan established in Japan in order to halt reparations payments, which facilitated monopolisation of capital and integration of financial and productive capital with the state. Japan also checked their movement of labour based on the sharpness of deflation, whereby paving way for capital and exploiting stimulus offered by American military through expenditure in Korean War. America was intensely involved on promotion of development in the military sector, thereby developing extensive civilian spin-offs. Post-war boom was attributed to an accumulation of capital that subjected a weighty saddle to the working class. During this period, there was a structural alteration of the high degree of labour mobility, which was attributed to uprooting workers and destruction of various communities. There was a high demand of adaptability to the technological change for workers, whereby resulting to increased intensification labour in order to cope with competitive pressure through installation of expensive machinery (Clarke, 1988, 174). Furthermore, there was a generalization of collaborative systems in order to reconcile the working class. In fact; this was based on the industrial relations and generalised expectations of increasing standards of living. The period was also characterized by a completion of socialisation regarding production of working class through a combination of private and public social insurance. There were other developments such as extension of public housing, education and health care services, which became all-inclusive system of social security. Keynesianism and the boom A state ideology regarding the entire the condition of the post-war boom is provided through Keynesianism (Clarke, 1988, 182). Commitment to full employment was defined through actuarial constraints, which were personified in state welfare. However, commitment was not a concession of the inclinations of the working class; thus, this facilitated confidence of the capitalist claiming there was a chance of accumulating capital and sustain the expansionary policies. Furthermore, Keynesianism offers a basic expression of the convention regarding the increase in the wage and public levels of expenditure in a way that expunges the contradiction involved in accumulation of capital. Nonetheless, the growth of the mass market had a chance of banishing the problem related to overproduction, which was regarded as the cause of the crises, depressions and war (Fine & Murphin, 1984, 58). On the other hand, there were increasing wages, welfare benefits and public services aimed at reconciling the working class to subordinations and wages, thereby offering healthy and skilled labour force that would facilitate accumulation and sustenance of capital. The cyclical changes of inflation and unemployment would be eliminated by the Keynesians and the state through establishment of active budgetary policy aimed at ensuring demand growth. In fact, this growth was expected to occur in a way that would maintain full employment, while avoiding spilling over into inflation (Clarke, 1988, 186). Moreover, this process was to be undertaken is a way that accommodated monetary policy without discouragement of investment through high interest rates or shortages of funds. There were proposals during the post war boom indicating that policies aimed at stabilization would focus on investment via public work programmes due to unemployment. In fact, there are types of regulations, which were necessary for fostering the necessary forms of fine-tuning envisage through post-war Keynesians. There were other investment programs related to long term planning of horizons and political consideration, which were facilitated by a reduction of tax and increase expenditure. Therefore, this was a way of stimulating economy given that there were immediate and necessary effects of electorate. However, other considerations facilitated cancellation of public investment, thereby imposing restrictions through monetary policies that led to inflationary pressures. According to Keynesians, there were no disputes between objectives of full employment and orthodox goals relate to the price and monetary stability. In fact, there was a primary exaggeration of faith evident through allocation of efficiency of the market. However, there were classical with a perception that unemployment was a sign of inappropriateness in allocation of resources (Coddington, 1983, 45). Moreover, they suggested a solution that involved restructuring of prices and production, which was to be based within the framework of money. On the other hand, Keynesians hand a different perception, whereby unemployment was considered a symptom of scarcity of demand, which could be solve through an injection of spending. Nevertheless, classical economist had a different perception towards Keynesian solution to unemployment during the post war boom. In this case, they considered this remedy to be a form of demand expansion and absorption of unemployment only in over expanded branches of production. In fact, classical economics claimed that this would result to a shortage in the supply of products, hampering of the restructuring of relative prices and sustenance of backward producers. Moreover, this would undermine the regulatory responsibility of the market, thereby focusing on postponing and intensifying inevitable crisis during the post war boom. Limits of Keynesian intervention Nonetheless, the Keynesian policies made insignificant contribution to promotion of the post war boom. In fact, the main contributor to the boom was inflation and the threat of unemployment. There were accumulations, which were associated with leading branches involved on production. In addition, there was increased interest by the government to identify the fiscal stance based on the Keynesian principle of inflationary gap, which was aimed at dealing with inflationary pressures through absorption (Coddington, 1983, 1). In fact, was considered more suitable way compared to orthodox prescription that involved balancing budget and depending on exclusive restriction of monetary policies to control inflation. The reasons for choosing the Keynesian theory as an approach to deal with the problems faced during the post war boom was due to a conversion to Keynesianism and the monetary policies which had been identified to be ineffective. In fact, this inefficiency was attributed to the excess liquidity in financial systems and booming profits acquired in the cooperate sector. Therefore, despite being adopted as the legitimate ideology by the government Keynesianism was taking it from credit for the boom. In this case, there were issues, which segregated Keynesians from the classical economists. However, these issues never emerged until establishment of barriers that accumulated confrontations due to governments’ dilemma regarding making choices between full employment and stability of prices during the post war boom. Effects of expansionary policies were identified by Keynesians as the increased prices in a way that influenced balance of payment. Nevertheless, there was a complimentary environment fostered by the expansionary policies. In fact, this would facilitate productive capitals through which advanced methods of production. Moreover, this facilitated to expansion of domestic market, thereby relieving pressure, thereby offering the capital that was required for financing new investment. Response of the capitalists to the incentives aimed at raising productivity-facilitated absorption of the wage increases, which were aimed at compensating high prices in a way that reduced pressure exerted by the inflation (Clarke, 1988, 189). During the post war boom, Keynesianism experienced some limitation, whereby it appeared after the failure of capitalist to offer a response to the opportunities in the environment. Other limitations involve expansionary policies, which failed to offer ways of ensuring there was a response. Therefore, the circumstances caused by these limitations led to threats of inflation that would become cumulative due to the rise of the wages for compensating price increases. References Clarke, S., (1988), Keynesianism, Monetarism and the Crisis of the State, Retrieved on Feb 13 2013 from Coddington, A. C., (1983), Keynesian Economics: The Search for First Principles. London: Allen and Unwin Fine, B. & Murphin, A., (1984), Macroeconomics and Monopoly Capitalism, Sussex: Wheatsheaf Books Ltd Moody, P., (2013), Letters: Keen on Keynes. Communist Party of Great Britain. Retrieved on Feb 13 2013 from Read More