LONDON – For decades, Keynesianism was associated with social democratic big-government policies. But John Maynard Keynes’s relationship with social democracy is complex. Although he was an architect of core components of social democratic policy – particularly its emphasis on maintaining full employment – he did not subscribe to other key social democratic objectives, such as public ownership or massive expansion of the welfare state.
In The General Theory of Employment, Interest and Money, Keynes ends by summarizing the strengths and weaknesses of the capitalist system. On one hand, capitalism offers the best safeguard of individual freedom, choice, and entrepreneurial initiative. On the other hand, unregulated markets fail to achieve two central goals of any civilized society: “The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.” This suggested an active role for government, which dovetailed with important strands of left-wing thought.
Until The General Theory was published in 1936, social democrats did not know how to go about achieving full employment. Their policies were directed at depriving capitalists of the ownership of the means of production. How this was to produce full employment was never worked out.
There was an idea, originally derived from Ricardo and Marx, that the capitalist class needed a “reserve army of the unemployed” to maintain its profit share. If profits were eliminated, the need for that reserve army would disappear. Labor would be paid what it was worth, and everyone willing to work would be able to find a job.