What is Marx's view of fiscal policy ?
Source Jim Devine
Date 07/05/25/21:11

Thanks, Paul.

Here's an example for the US. Keynesian fiscal policy was applied --
without any progressive intent -- during the 1960s, as part of the
Vietnam war buildup. The average aggregate unemployment rate fell to
3.5% in 1969, as low as its been since 1929 (when these stats start).

Profit rates fell, starting in about 1965. I interpret this relatively
short-term trend as being due to persistently low unemployment, which
increased labor's bargaining power (and back then there were unions)
and hurt profitability. In the classical story told by Marx in
CAPITAL, this should have caused accumulation to slow, causing a

But the Keynesian expansion prevented this recession. The urban
disorders of circa 1968 also encouraged LBJ to avoid too much fiscal
contraction (which would have led to a recession). So the conditions
of low overall unemployment persisted, squeezing profits.

(Where was monetary policy (the Fed) in this mix? it was too busy
trying to keep the dollar fixed in the Bretton Woods fixed exchange
rate system that prevailed at the time.)

The standard response of capitalists to squeezed profits when
recession is prevented is inflation: each raises prices to try to
solve the profitability situation. They can do this when demand is
abundant, as during the period 1965-69. This meant a big upsurge of
inflation, one that persisted into the early 1970s. It didn't solve
the profitability problem right away, however.

So the short-term stimulus of Keynesian policy was connected
relatively quickly with longer-term results, causing an inflationary
hangover, which lasted into the next decade.

Nixon later used recession to fight inflation -- along with wage
controls. In addition, he freed the Federal Reserve of its
exchange-rate responsibilities. This eventually meant that fiscal
policy was largely downgraded in importance and the domestic HQ of
Finance Capital (the Federal Reserve) took over policy.

On 5/24/07, Paul wrote:
> Charles B. writes:
> >What is Marx's view of fiscal policy? and in the eyes of Marxism how would
> >he fix the Macroeconomic policy?
> >Best Answer - Chosen By Voters
> >......

> [This come from a Yahoo groups question no?]

> This is one of those "big questions". Since there are (and have always
> been) many flavors of Marxism there are flavors of "legitimate"
> answers. Here is my understanding of a fair consensus today -- but not a
> universal one (and a bit different than say 70 years ago). Would be
> interested to hear if others would summarize it differently.

> 1) Marx's biggest goal is to get people inspired to thinking of a
> system past Capitalism and he felt some of Capitalism's problems, including
> macro economic problems, couldn't be fixed within the current system.

> 2) Marxists support progressive reforms within Capitalism that help
> workers and the disadvantaged. That includes demanding policies to
> increase employment and reduce the waste and suffering of
> recessions/depressions. Marxists recognize that, in some cases, fiscal
> stabilization policies can help the overall "macro economy" *in the short
> run* (mostly these are the passive "automatic stabilizers" provided by
> income support programs, national pensions, guaranteed social benefits,
> etc). {Side note: Statistically, the assistance going to working class
> people from these programs is basically financed from working class people.}

> Despite all the talk, truly pro-active "Keynesian" fiscal
> policies have largely never been tried on a scale and speed that would mean
> a lot (mostly monetary policy has been used and there are divergent
> estimates about its impact). Making use of fiscal policies on a large
> scale would require large political changes (c.f. Abba Lerner and so-called
> "functional finance").

> 3) But the short run improvements through "Keynesian" policies have
> their limits *in the long run*, as well as their costs. In the long run
> capitalists invest for profit - that is what drives capitalism. When you
> try to push the economy past what capitalists would "normally" do to
> maximize their profits you start to hit offsetting effects over a period of
> years. If pushed far enough this could even *lower* long term growth. For
> example, if you raise workers' salaries you are stimulating the economy in
> the short run, but you are also increasing capitalists costs thereby
> reducing their profits. So in the long run you may decrease
> investment. The same holds true for fiscal policy although there are
> different variant cases (depending on how the fiscal stimulus is financed
> and whether you are trying to push capitalists above the level of their
> "normal rate" of profit).

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