"Keynes's critique is very useful, but I think his methods weren't sufficient in the 1930s, and I don't think they are necessarily sufficient today."

Esme Choonara is author of A Rebel's Guide to Trotsky.

Esme Choonara speaking at Marxism 2010

State of Nature: You mentioned in your talk how Keynes has been credited with getting out of the depression of the 1930s and the New Deal, but you challenge that.

Esme Choonara: I think what I tried to explain was that firstly a lot of Keynes' policies were actually quite limited. In the 1930s a lot of the things that he proposed were not on the sort of scale that could deal with a crisis of that extent. The increase in state spending wasn't down to what most people today think of as Keynesianism. It was more a pragmatic response to the developing crisis, followed by the huge amount of spending that then happened when the world plunged into the Second World War.

I think the New Deal has a lot of good elements to it and a lot of helpful programmes, but it had some that were less obviously good like bailing out the banks, similar to what we've seen recently, if not on such a big scale. It stabilised the depression - it stopped it becoming a bigger slump. But it wasn't until you saw the economies drawn into the Second World War that you saw a massive increase in state spending. It wasn't about Keynesianism; it was about the immediate reality of war. Whatever ideologies different states had, suddenly they were going to use their states directly to control investments, to produce arms, to distribute arms, to fund war economies that were basically state run. So, it was actually a mixture of the huge destruction that happened in the war and the huge amounts of state spending that actually dragged the world out of the depression, but at huge human cost.

SoN: What difference would Keynesian policies make to the current crisis, if any?

EC: Well, the things we should take from Keynesianism are his attacks on the idea that the free market will right itself. He was very scathing about, for example, the financial sector, about speculators, and I think he was quite right to be so. We continue to see in this crisis that the speculators are completely treacherous and not to be trusted, and the fact that the banks that have been bailed out are still dishing out huge bonuses is I think something that Keynes would be very critical of.

Beyond that I think the world today is very different to the world Keynes lived in. One of the things that Keynes argued was that low interest rates produced the best results, but that was easier to say in his day when the interest rates were higher. In terms of Keynes's ideas about state spending, it's clear that the huge amount of money that the state spent has helped temporarily stabilise things, but not in the way Keynes talked about. Keynes was talking more about public works and so on whereas what has actually happened is that the government has spent a huge amount of money bailing out the financial sector, which is in many ways building up problems for the future. Keynes' critique is very useful, but I think his methods weren't sufficient in the 1930s, and I don't think they are necessarily sufficient today to get us out of this crisis that we are in.

SoN: Does Keynes say much about how the state and democracy work? Or how capital can have a disproportionate influence on the state?

EC: Only in practical terms. At various points he tries to offer advice to different governments. But a lot of his advice has been offset either by not wanting to upset politicians or business interests. I don't think he had a proper analysis of the state in terms of understanding its relationship to capital. But partly that wasn't his fault because the relationship between state and private capital has changed a lot since Keynes' day. The state played a much smaller role in directing the economy than it does now. If you think about today, even in the height of Thatcherism the state still continued to play a much bigger role than it did in Keynes' time. I think the world has changed a lot, although it is worth noting that Marx was writing a lot earlier and he had a much clearer analysis.

There are some interesting chapters in his General Theory where he talks a little about human freedom and how some societies - I suppose he was looking towards Russia and places like that - seemed to have ironed out some problems, but at the cost of human freedom. So he does have a commitment to the idea of human freedom and democracy, but I don't think he really developed them, certainly not in a thematical way because his project is less a political one. He accepted a division between economics and politics.

SoN: Is that a fatal flaw in his theory then?

EC: Yes, definitely.

SoN: You talked about how consumer saving stops supply and demand by creating a saturation of supply. Is this still a problem now?

EC: If you remember early on in the current crisis, one of the things that came from the government was the idea that consumers are not spending. In fact, it's one of the things they throw at us every Christmas: that we are responsible for wrecking the economy because not enough people are shopping, so we need to get out and shop to save the economy. Of course when people do go out and shop we're blamed for running up credit card bills and irresponsible borrowing. It's just nonsense to try and blame ordinary people for saving.

I think Keynes' point was that economically it could have an impact if workers weren't spending all of their money, and I think that's probably true. But I think the margins of that, given how little savings most people in reality have, are pretty minor. Where it becomes interesting is when you look at how recently household debt has gone up hugely, so it's less about whether people are saving and more about whether people are borrowing, and then what happens to that borrowing when you have so much debt in society, which is one of the things that has started to unravel with the credit crisis.

SoN: And pensions are going to be cut now, so it's almost as if saving is being more demanded than ever. Is that not going to undermine consumer spending as a way of getting the economy moving?

EC: It's a completely contradictory thing, isn't it, because they demand we all save responsibly for old age and they are in favour of wage cuts, so people will have less money to save for old age.