Anti-Capitalist Chronicles: Keynesianism of the 1960s

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In this part 4 of 4, Prof. Harvey talks about the economic evolution of the 1960s and the suburbanization of America. To establish and secure its position as the global leader, the US invested heavily in the military, guided by Keynesian policies of deficit spending. The military-industrial complex came out of the post-war period, in an effort to keep up with the Soviet Union's militarization and protect the world from the spread of Communism. The suppression of socialism at home was supplemented by the experience of the affluent working class, facilitated in large part by the creation of suburbs. However, marginalized minority workers, who did not benefit from the increased standard of living enjoyed by mostly white workers, fought against economic injustices and fueled the Civil Rights movements of the 60s.


Transcript has been edited for clarity.

This is David Harvey and you’re listening to The Anti-Capitalist Chronicles, a podcast that looks at Capitalism through a Marxist lens. This podcast is made possible by Democracy at Work. I now turn to the second part of the key contradiction that existed in 1945, which is how to get the employment back, how to get full employment, and how to create create an economic model that was going to deliver the goods for at least a significant sector of the American population, in particular that sector that was being demobilized and was coming back out of the military, having fought a war they didn't want, to come back and face the situations of unemployment and misery that had occurred in the 1930s.

So the big question for planners and everything, was how is the U.S. going to use the immense increase in productive capacity that occurred during World War 2? How is it going to put it to use in such a way that people were going to find themselves living in a much more secure and economically rewarding world? So this was the big problem of 1945, and as happens with a lot of these things, it’s easier to see in retrospect what worked. At the time people were suggesting all kinds of different things and essentially it was a two-fold process. Part of it was given by the U.S. international situation. Now the U.S., until recently, has been very little dependent upon foreign trade for its well-being and wealth. It’s had a very large internal economy, so that only about, I don't know, 12 or 14 of the GDP of The United States was actually attributable to foreign trade until very recently. So the United States had to reorganize its internal economy in some way.

Now in the 1930s, there had been a lot of reorganizations going on. It had been the public works administration which invested in physical infrastructures. There had been a national resources planning board which had tried to set up a rational use of the internal resources in the United States. There was an agricultural emphasis upon dealing with the problems of the Dust Bowl in ways which rationalized agricultural production and turned the United States into a net exporter of food grains. So there were a lot of things of that sort which had occurred in the 1930s which could be built upon; and one of the economic things that was occurring internationally was that the United States recognized that the war in many ways had arisen out of the creation of what might be called competing economic entities and in some cases empires, Britain had its empires, French had its empire, the Dutch had their imperial possessions. Part of the problem for Germany was it didn't have an empire in the second world war, so part of its occupation of Eastern Europe was to take care of the fact that it didn't have an empire when everybody else did have one.

So the United States recognized that competing imperial Inter-Capitalist competition was a negative thing and therefore in 1945, it decided it wanted to create a world order which would eradicate this kind of breakdown into competing hegemonic configurations and that would be the major contribution to peace. Now the importance of peace was not some sort of moral concern, though I'm sure some people did have that, but The United States had found that twice in the century they had been involved in a war that had come out of the competition between European powers so The United States wanted to do two things: one is, it wanted to make sure those two those powers didn't compete with each other anymore. So it encouraged things like the formation of what eventually became the European Union but it also encouraged an open door— a free market structure in which commodities, and eventually capital, could start to to move around the world in ways that were positive, and it therefore did something which was very different from what happened after World War 1. After World War 1, this Versailles settlement insisted that Germany pay reparations for the war, and that, in many respects, led into all of the instability and led to the Nazi regime and so on and. So there was a clear recognition that that was the problem and therefore you didn't want to do that.

What the United States wanted to do was to somehow encourage economic development around the world because economic development would then create markets for U.S products and all the rest of it. It was partly stymied in this by the fact that the Soviet Union took on its particular empire, so you get the division of the world initially into two, and then eventually the Bantung conference, the definition of a third world as well, but the Cold War was very significant and one of the ways in which the U.S. managed to keep up economically was of course through continuing emphasis upon military expenditures and military activities so that the U.S. was very very concerned to fight the Cold War in a sort of upfront confrontational way, and the way in which to do that was to say, well if we're going to fight the Cold War, we're going to have to do it by actually encouraging economic development, and Germany was a paradigm case and of course also Japan. That if Germany and Japan were going to suffer immensely, there would be a lot of instability. So the U.S. went out of its way to reconstruct the economies of Europe and to reconstruct the economies of East Asia around this idea that vibrant Capitalist economies were the best defense against Communism and so you wanted to do two things; one was to have a military presence and you wanted to militarily protect all of those countries which were siding with you, which meant Europe and Japan and the like. So you wanted to protect them from the threat of Communism, which meant that the U.S. had to spend a great deal of money being the world's policeman, and do all the rest of it, and fighting the first fight, fighting the Cold War against The Soviet Union. Now that meant that all of that capacity for military expenditures which had gone on in World War 2 were continued. It wasn't as if it all fell apart and okay the war is over we don't need to buy tanks anymore. Now you needed more and more sophisticated military equipment. You could sell the military equipment to your partners and all the rest of it. So that was one of the ways in which the U.S. managed to develop its economy. Now all of this was going to be obviously state sponsored and it was therefore going to be deficit financed.

And here we get back into the kind of question of what paradigm was prevalent in thinking circles in the 1950s and 1960s and the paradigm which got people out, got things going out of the stump of the 1930s, was of course Keynesianism. I mean, it said deficit finance is a good idea: you deficit finance some military expenditures but the problem with military expenditures is they don't really create use values for the population, although that is in a sense not quite true, for one very simple reason: that the military expenditures, and the research that went into military expenditures, involved the creation of new products, and the new products which came out of the military, and the military research strategies were very significant for the advance of the economy. In other words, we were getting a flow of new goods and new things which were byproducts of what the military needed in order to become more and more sophisticated, and of course part of it meant, for instance, air travel started to become significant and their travel, the technology of airline production, was very much dictated by the defense.

So the spillover benefits of the military activity, particularly in the realm of research and the creation of new products and things, and the sort of thing I always jokingly refer to and say, “think of a world without velcro.” Velcro was a guy that came out of the military. Of course in the end, internet came out of the military. The military side of things was an innovation-led side for military advantage and when the Russians were the first to go to outer space with Sputnik, we immediately created a situation in which vast expenditures could could pour into research on the space race and all the rest of it. Now the military themselves were of course very adept at claiming that they were at a disadvantage and so there was a period of 1950s and 1960s where there's all this talk with something called the missile gap. The story was put around that the Soviets had far more missiles than the United States, and far more accurate missiles than the United States, and that was proven by Sputnik and so therefore the missile gap had to be closed. You know you'll find that the military themselves are very active and we therefore often refer to the military-industrial complex as being very important but this was a very significant area of economic development. It's producing employment, it’s increasing new products, but it's not necessarily producing the kinds of goods that you would really want to have for civilian specific purposes. Marx has an interesting kind of comment where he says military expenditures are like taking part of the value that you have in society and tipping it in the ocean. It's a very nice way of looking at it well, but as I've indicated, it's not entirely true; some of it is true, yes a lot of it is. This is the market for sophisticated aircraft and sophisticated radars, sophisticated electronics, and so on; that market is guided not by who's got the money and who can buy stuff but it’s guided by military considerations and not not by, sort of, economic logic.

So the military side of things was always there; it was a very important part of it and the second part of it was a question of ineffective lifestyle. Now as I've mentioned there was reasonably full employment in World War 2 and labor started to become significantly present and all well organized in certain industries and out of that came a kind of a recognition that you couldn't go out and, you know, doing what Napoleon— the emperor Napoleon did, which is to crush dissent and crush the workers and so on, just coming back for more, you couldn’t do that.

So you had to buy them off. You had to buy them off with union contracts and the like. Big corporations were put into a situation where they were encouraged by presidents, and encouraged by the press, and by everybody to try to negotiate a bit with labor so that you could develop what might be called the lifestyle of “the affluent worker.” Now it's interesting, we don't talk about the affluent worker much anymore but at this time there was indeed a segment of the working force which was reasonably affluent or guided by military, by union contracts and they were largely employed in the large corporations in the large monopoly sector as I think I mentioned last time, in the monopoly sector was things like automobiles and steel and rubber and all the rest of it. Now this workforce, however, was predominantly white, not totally, so but predominantly white some of it had been infiltrated, if you want to use that word, during the Second World War. So there were African Americans involved, Puerto Ricans and women involved but the affluent worker was majority white working class with respectable jobs doing something, and it's just, I think terribly important, doing something which they felt was meaningful. I mean when you make a mold or an automobile or you're making steel girders which are going into building bridges or something like that, you kind of feel you're contributing something, your labor means something and that, therefore this notion of a working class which is fairly affluent has a certain meaning in terms of its contribution to the national economy and is being rewarded with a kind of wage which allows it a reasonable lifestyle and that reasonable lifestyle was increasingly defined by suburbanization. And this is one of the big areas in which surplus productive capacity after World War 2 was absorbed.

That is urbanization. Now that's interesting, you see, because what did Louis Bonaparte do? Urbanization, Haussmann rebuilt Paris. What did the United States do? Urbanization, suburbanization. It wasn’t Haussmann, it was Moses. Moses wrote a very interesting text on Haussmann and kind of recognized that Haussmann had actually revived the French economy very much through his works, and you know Moses who had begun the kind of public works that that still surround us. If you drive out, for example, to Jones Beach out of New York you'll find yourself on a highway which was created by Robert Moses back in 1934. So it was already happening. But what Moses did was to push it big time, scale it up, as we say, so it became instead of a bit here and a bit there, a major process which we call suburbanization. The development of Levitt town and complete suburban communities which allowed the affluent worker to have a secure job, and have a family, maybe one or even two cars in the driveway, a television set, and could fill the house with things, and so on. This was in fact one of the big answers to the problem of what to do. And what to do was supplemented by how to do it. If you were going to build suburban houses you needed people to be able to buy it. Well one of the things he did was to set up a GI bill which actually subsidized returning veterans in the housing market. He also set up a GI bill for education, so that returning veterans could could get a college education. This was the economy, which was beginning to work but it was an economy which was, in terms of its labor force, divided.

The affluent worker, mainly the white workers, unionized, but they weren't going to talk Socialism. I mean why would you if you have a reasonable wage and a couple of kids in a decent public school and you've got an RV and your driveway and all that straight? Why would you even want to talk about Socialism? So in a sense the ideological configuration which says you shouldn’t talk about Socialism was supplemented by this experience of a large segment of the working class, which was pro the kind of Capitalism that was emerging. It recognized that it was exploited and so you get strong movements and saying, well, we have to deal with the exploitation. There were quite vigorous labor movements and labor strikes and so on, but basically what happened was that was that this was something which was kind of a daily kind of fight going on. The class struggle was being fought over union contracts.

One of the ways in which union contracts became important was when people started to have better wages in these monopoly sectors like automobile, and steel, and construction and so on. When they started to do that, people responded to the higher wages by raising prices. So you start to get inflation and this is one of the things that really started to undermine the whole kind of package, in the end, was the inflationary push that occurred particularly towards the end of the 1960s. Inflation then was written in into union contracts, in that union contracts had a cost of living adjustment clause which said basically if inflation goes up two percent, the wages have to go up by two percent. So this then made a cycle of rising wages, rising prices, and rising prices requiring more wages which was an upward spiral that was beginning to occur in the 1960s within the Keynesian dynamic and at the same time, there were other issues about distributive justice which began to become very significant. Also, here's another interesting thing, where the international situation and the national situation became very tied up with each other. The United States was in effect protecting the rest of the world militarily from Communism.

At the same time, it had to try to exert moral leadership consent to its dominant position in the world. In other words, it had to somehow rather find a way of saying U.S. culture is the epitome of human culture. In other words, the U.S. was not only a military leader but it had to be a leader in terms of consumerism, in terms of cultural forms and all the rest of it, and the U.S. did this very consciously after 1945. For instance, if you've been around universities you know that in many universities there is an area called American studies. Well, American Studies didn't exist prior to World War 2. It was something that was invented in the 1950s, as the necessity came for something saying something distinctive about American culture and American Studies were supposed to celebrate U.S culture and supposed to promote U.S. cultural values around around the world and in that regard the promotion that went on around the world was about you know what things in the United States were really major contributions to global culture. And one of the things that came out of this was of course American musical traditions, and particularly folk and all the rest of it, but of course jazz. So that the United States, the State Department, sort of subsidized jazz groups for going to Paris and this raised the question of race in the same way. The U.S. wanted to be a leader amongst all those African nations, which were coming on board through decolonization and therefore had to have a situation where the United States could not itself be racist at the same time as some are asserting its moral leadership over Ghana and Nigeria and the like.

So all of that was leading into a sort of situation in which a segment of the bourgeoisie realized that the racial issue was a very important one for the U.S. reputation around the world, and if it was going to be involved in a struggle over Communism in Africa, then it had to have credibility with African politicians, and you couldn't have a credibility if you maintain racial segregation inside the United States. Now when the Kennedys started to turn towards the African Americans as a support base, you can say it was for moral reasons, and maybe it was for some degree, who knows, but there were also practical geopolitical reasons why the United States could not continue to be racially segregated internally at the same time as it was posturing as the global leader in creating a civilized society, a decent society, in which all people could come together. And I mentioned earlier this kind of reform of the immigration act of 1965, where a lot of people could come from all over the world. So there was a real kind of question there and, at the same time, the problem was emerging inside of American society, of what we come to call relative deprivation.

Now the thesis of relative deprivation goes like this, if you are in a condition of absolute poverty and everybody else is in condition of absolute poverty, you feel okay, you're all in the same boat. Relative deprivation comes when you’re in a situation of poverty and somebody else is in a position of affluence, and the bigger the gap between where you are and where they are, the more relative deprivation you feel and you become pretty agitational about it. You say “this is not right!” Relative deprivation is a powerful political force and one of the things that really happened, as I've mentioned, is we had this kind of affluent worker syndrome. They were being celebrated through Hollywood, culturally, and so on. Through sitcoms, I love Lucy, The Brady Bunch, all that kind of thing, and at the same time television was coming on board. What television did was to raise the sense of relative deprivation, because black people watching television could see the lifestyle of the affluent worker and say, basically “why are they privileged in the way they are? Why am I working sort of 80 hours a week for almost nothing?”

So this division between the affluent workers, predominantly white, with a smattering of African Americans and Latinx and Puerto Ricans and so on, started to become a real problem and there was the sense of relative deprivation that fueled a civil rights movement, which was partially fueled by the support from certain segments of the U.S. bourgeoisie, who valued the fact that the U.S. was going to be the cultural leader of the world and it couldn't be a cultural leader of the world if it was overtly racist and segregationist. So what we have then is an economy in which all the economic activity which is taking place is about the suburbanization and at the same time we’re building an interstate highway system. This is really interesting because planners saw that the interstate highway system was absolutely crucial for pushing demand and creating an effective demand in society, but you couldn't put it that way, so one of the things you did was you started to say we need an interstate highway system for military security reasons and it's still the case that the interstate highway system is regulated on the basis of military security and you could get the military security through when you couldn't get the policy that we need to build highways for people. I

n other words, you had to disguise the Socialist side of what you might want to do with highway systems and suburbanization. You disguised all of that through this through this other channel. So the economy then starts to push in this kind of way and we start to see the development of new institutions and new structures. At the same time this is going on, there is a recognition that state, as it was constituted in the New Deal, had certain obligations. So we get things like, eventually, Social Security which is then supplemented later on in the late 1960s by Medicare and Medicaid, then supplemented by other things which are attempting to create a welfare structure, to support the least well-off in society; but that didn't deal with the question of relative deprivation. People still felt if they weren't, you know, getting gifts from the state, well that’s one thing, but if on the other hand, they're meaningless jobs, and if on the other hand, they’re not having much freedom of choice in terms of what it is they're going to express in terms of their culture because most of the freedom of choice is taken up by social welfare, then you get certain tensions, economic tensions. The big economic tension, however, arose out of what I was saying, which was rising wages, which create rising prices, which create rising wages.

So this inflationary spiral starts to pick up in the 1960s, the end of the 1960s. Now this is something which, when it starts, it’s kind of okay, you can handle it. It could be handled for a little while and it was handled very well during the 1960s. It's not as if the 1960s had no crises, because there were crises all over the place, but in the 1960s you start to get this relative deprivation coming through very strongly in terms of what's uprising and the development of what became known as the urban crisis. Now notice this is not a crisis of the economy as a whole. This was an urban crisis. There was an urban crisis of impacted non-white populations in city centers, who were having terrible time finding decent employment, certainly couldn't find a decent house in a decent living environment, as a 48 law has, so you get all of these kind of revolts going on. You get the Watts revolt in Los Angeles, you get Detroit and after the assassination of Martin Luther King, about 300 cities in the United States had massive protests, burning down those kinds of things, this was so people recognized this was intolerable for internal reasons as well as intolerable for external reasons.

I've emphasized the external reasons because it's not always mentioned. I'm not saying that it was determinative but it was very very important to those people who are looking at globalization as a vehicle to ensure global peace, and also global tranquility at the same time, as it offset the Soviet threat. This kind of thing was very important for the U.S. ruling class to recognize and I think that the reformist side of the U.S. ruling class said “okay we can market American culture, we can use our money power to start to define taste.” There's a wonderful little book, by the way, called How New York Stole The Idea of Modern Art, because modern art was essentially defined by what was going on in Paris but effectively the big money was mobilized in New York, and increasingly the definition of what is good art was defined by what came out of New York, and of course the American artists like Jackson Pollock, and so on, start to become part of the selling of American culture worldwide as did Hollywood. So the U.S. realized it had a global role, and a certain segment of the U.S. Capitalist class realized it had this global role and it couldn’t sustain this global role without at the same time engaging in internal reform, so the blot of racism was seriously addressed somewhere at some point during the 1960s and there was a lot of fighting going on over that, obviously, and so I'm not going to say that this was the only reason. There was a segment of the American corporate Capitalist class that didn’t care about this, and didn't want this, and so a lot of wealth in The United States was going the other way, so it was a divided thing, but the economic model was working quite well, but it started to get into inflation problems in the late 1950s, 1960s around the same time as the student movement, and the anti-war movement, and the civil rights movement started to collide in huge ideological based uprisings in 1968 into 1970 or so.

So this was the situation, but by the time you get to 1968, there start to emerge some very real problems in exactly the same way, and it always fascinates me that Haussmann got into such difficulties in Paris, because in the first period of time, he was deficit financing and he was paying it off. As time went on, he found it harder to deficit finance and as time went on he started to do something some shady; that is, he started to deficit finance and use as the basis of the loan, future revenues, not present revenues. It was a guess of what the property taxes were going to yield next year. So, Haussmann started to play these games of shady financing, structures which worked well all the time the economy was working well. As soon as it got a little bit into recession, this is when he had his problems and an old thing came unstuck in 1868 but a similar thing that happened in the United States, particularly around New York.

The deficit financing of the New York government started to get into trouble, some of the big institutions, which were funding the new housing and the deficit financing, they found housing and all the rest of it, started to have difficulty. The New York budget which was one of the largest public budgets in the world, by the way. I think it was something like the seventh largest public budget in the world, so when you're talking about New York, you’re not talking about any old city, you're talking about a public budget which is huge by the standards of the time. So all sorts of issues start to crop up around 1968, 69, 70, really running into problems in the 1970s. The other problem globally was inflation. So you've got inflation beginning to pick up so the model itself, which came out of 1945, and was very successful, generated high rates of growth and the high rates of taxes which were around at the time were also significant. There was a real attempt at redistribution of wealth, well-being towards those marginalized populations in impacting cities and this began in the late 1960s after, particularly after, the uprisings which occurred after the assassination of Martin Luther King. Vast amounts of public money started to pour into the inner cities, into welfare, into trying to assuage the anger that obviously existed in American cities. I mean and the bourgeoisie were very, as I said, divided, but the bourgeoisie was horrified by the image projected around the world of all of the cities burning down because of the inability to deal with a racial kind of question.

So something had to be done. So, there was an attempt at reform of that system, particularly after 1968, and that was where the reform itself relied upon deficit financing. Deficit financing was running into the point where, well where's your collateral? The deficit is not good and it's not good, it's not working well, it's difficult. That was what I think was really significant to the crisis of the 1970s. So the crisis of the 1970s was therefore an inflationary crisis, it was also a crisis of ideology and therefore again this crisis was picking up around 1968 and it crested in 1973 and 75 and we'll deal with that in the next time.
So next time I want to talk about how the U.S. responded to the crisis of the 1970s, which themselves were a product of what had been done in the 1950s, and we'll then be in a position, I think to ask the question: how do the contradictions of the 1970s produce an outcome which is now generating its own contribution, its own contradictions? And where are we in all of this? And what kind of exit is there from the contradictions we currently face? So we'll take those issues up next time. Thank you for joining me today. You've been listening to David Harvey’s Anti-Capitalist chronicles, A Democracy at Work production. A special thank you to the wonderful Patreon community for supporting this project.

 

Transcript by Henry Kaplan

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