It wasn’t only his desire to restore the health of capitalism that set Keynes apart from Marx. His theory of crisis was also fundamentally different. Where Marx saw the driving force of capitalism as accumulation for accumulation’s sake—the constant drive toward profit—Keynes continued to assume that “consumption…is the sole end and object of all economic activity.” The lack of “effective demand” in Keynes’ theory of crises is another way of saying that capital is not being invested; it does not, however, explain why. In short, whereas for Marx the possibility of the separation of purchase and sale that makes crisis a possibility is the starting point for understanding capitalist crisis, for Keynes it is the endpoint. Keynes’ theory of crisis—the lack of aggregate demand—is merely a description of the effects of crisis, not an explanation of why crises take place.
(...) The appeal for some, then, of Keynesian policy is that it calls for some redistribution of wealth from the top to the bottom, and that he pushes for “full employment.” However, Keynes’ perspective on this was strictly a ruling-class one. He supported not higher wages, but rather “the maintenance of a stable general level of money-wages” in order to maintain “equilibrium.” Keynes also thought it important that wages not become too high. In fact, though Keynes criticized the neoclassical theory of wages, he did not completely reject its premises, writing, for example, that, “A reduction in money-wages is quite capable in certain circumstances of affording a stimulus to output, as the classical theory supposes.”
(...) What Keynes added to this understanding was that at times, capitalists might view all other options as money-losing prospects and no matter how low the state moved interest rates, capitalists may still save. Keynes called this a “liquidity trap” and this is exactly the scenario that befell Japanese capitalism in the 1990s. For this reason, Keynes saw manipulating interest rates as only one tool for encouraging investment. The theory is that interest rates can be used to stimulate investment if real interest rates—that is interest rates adjusted for inflation—are cut to a point that they are negative. However, the Japanese experience illustrates that even if interest rates are negative, capitalists won’t invest if there is not a perceived avenue for investment. A similar dynamic is currently playing out within the U.S. economy. Federal Reserve chairman Ben Bernanke has reduced the target for the Federal Funds rate from 5.25 percent to 1 percent. This has failed to induce lending or investment because there is little for capitalists to invest in that is profitable. Furthermore, central banks only have control of the economic policies within their own countries. It makes the system unstable, because central banks can end up working at cross purposes based on national needs as opposed to having a cohesive view of fiscal policy within the global economy as a whole.
(...) Keynes conceptualized something called the “multiplier” effect. That is, by pumping $100 into the system at the right place, it could generate significantly more activity. Giving $100 to a worker might mean they immediately spend it at the local grocer. The grocer might then turn around and spend $90 of it himself on something else and so on and so on. On the flip side, giving $100 to a billionaire might not accomplish the same thing because the billionaire has no immediate need for the $100 and is only to going to spend if he sees investment opportunities with high rates of return.
(...) Neoliberal ideology, for its part, rejects the role of fiscal stimulus and puts greater emphasis on monetary policy, which accounts for the predominant role of the Federal Reserve Bank over the past thirty years in dealing with economic problems. In practice, however, neoliberals do have a fiscal policy—cutting taxes on the rich and increasing defense spending. As a result, during the neoliberal era government spending as a percent of GDP and per capita has risen, not fallen. Theoretically, neoliberalism is opposed to state intervention. In practice, military spending and corporate welfare are not only accepted but welcome. Now that the system is in crisis, ideology is discarded, and those who may have crowed loudest for the state to leave the market alone demand that the state intervene to save it.
(...) A key linchpin in this agenda was the dollar policy. Coming out of Bretton Woods every currency was pegged to the dollar, which, in turn, was pegged to gold. The fixed exchange rate put a dollar at $35 for an ounce of gold. Currencies would move against the dollar based on whether individual nations had balance of payments problems. If you had a deficit, you had to cut imports or else be forced to devalue. This arrangement more or less held until 1971 when the United States pulled the plug on the gold standard.
(...) The Bretton Woods institutions eventually took on much broader mandates than rebuilding capitalism in Europe and Asia, and after the crisis of the 1970s, adopted neoliberal loan conditions requiring nations to privatize and deregulate their economies. As Joel Geier writes,

Under the original Bretton Woods system, IMF loans were aimed at preventing devaluation and propping up demand. U.S. capital accepted these Keynesian measures when the U.S. was the major world exporter, ran large trade surpluses, and the rest of the world depended on its currency to pay for those imports. But in the 1980s, the IMF turned all of its previous policies on their heads: It now deliberately imposed devaluation and forced reductions in national income and demand in order to limit imports—all as a means to guarantee repayment of debt to international finance capital.

(...) The Great Depression played out in two acts. There was an initial drop to the depths in 1932, a recovery from 1933 to 1936, and then a second drop in 1937 and 1938, even after the initial Keynesian salves had been applied. The economy only decisively recovered in 1939, when the United States began war production for the Allies.
(...) The war effort created the rise in effective demand—in reality, government war spending, not consumer demand—that Keynesian measures failed to produce. As a result, employment and production, especially of arms, helped stimulate economic growth and an end of the Depression. Keynes himself saw the stimulating effects of the war effort as a vindication of his theories, having commented before the outbreak of war, “It is, it seems, politically impossible for a capitalist democracy to organize expenditure on the scale necessary to make the grand experiment that would prove my case—except in war conditions.”29 Of course, the cost of this method of recovery—fifty-five million dead—was a brutal price to pay. Moreover, the war played an important role in helping to wipe out and devalue capital and drastically reduce wages, both of which contributed to the restoration of profit rates after the war, but which were not part of Keynes’ remedies for crisis.
(...) Moreover, in adopting these state-led measures, nations were simply returning to the same policies of “war socialism”—“forced savings, controls on money, credit, prices and labor, priorities, rationing, government-borrowings”—that they had put in place during World War I, “despite the ‘orthodox’ approach to economics that prevailed at that time.”30 It was a sleight of hand for Keynes to now promote war—a product of the unplanned, competitive character of the world system—as proof of his theories.
(...) Yet there was never a point, except during the war itself, where the United States, or any European country, reached full employment. Though the term full employment was thrown around, in practice it was adjusted to mean, in the words of the American Economic Association in a 1950 report, the “absence of mass unemployment.” Proceedings of the British Royal Institute for International Affairs in 1946 defined full employment as “avoiding that level of unemployment, whatever it may happen to be, which there is good reason to fear may provoke an inconvenient restlessness among the electorate.”
(...) It was only well into the 1960s that they started to face competitive pressures that unearthed the contradictions. The U.S. was spending huge sums on its arms industry while its most dynamic competitors—Germany and Japan—were reinvesting in new plant and equipment. Those competitors began to outpace the U.S. in the 1970s. In order to retain economic power, the U.S. needed to lower its labor costs relative to Japan and Germany, a difficult task especially important given that it was saddled with heavy arms expenditures when those nations were not. It was this crisis, in which stagnation was accompanied by inflation, that ultimately paved the way for the neoliberal restructuring of capitalism.

(...) In practice, neoliberalism did not produce a full break from Keynesianism; and in some important respects the limitations of a return to full Keynesian economic policy are already clear. First of all, interest rate reductions—the first line of defense recommended by Keynes—have already been used under the Fed chair Alan Greenspan (when the economy was in boom) and now by Ben Bernanke (in response to the financial crisis). In the first instance, easy money helped create the housing bubble that formed the basis of the current crisis; and the more recent cuts aimed at lifting the financial crisis have not unfrozen bank lending. Second, the government has already run up large deficits for the past two decades—the federal debt now stands at $10.6 trillion, and the current deficit is set to go up to a $1 trillion next year as new stimulus plans are brought on line. The question is how far can this go? The government can print more money, as it has already begun to do now that the dollar has rebounded; but there is a long-term danger of runaway inflation, which could force them to raise interest rates that put a halt to growth.

(...) It is a sign of just how much the economic literacy of the left has deteriorated that Keynesianism—born as a reforming ruling-class economic program—today may become the default position when calling for an alternative to neoliberalism. Yet socialists must make a distinction between those measures of state intervention—such as the bank bailouts—that are measures of state monopoly capitalism designed to save the bankers to the detriment of the working-class taxpayer; and those measures of state intervention that will come as a result of popular demands. Socialists are not indifferent to the reforms—or the struggles to achieve them—that will be necessary to reverse the three decades of capitalist assault on the working class.