Weimar Futurities with Engelbert Stockhammer

Engelbert Stockhammer joins Money on the Left to discuss the political and economic debates that shaped and ultimately devastated Weimar-era Germany. Professor Stockhammer is professor of political economy in the department of European and International Studies at King’s College London and has published widely on financial instability and Post-Keynesian economics. In this episode, we focus specifically on Stockhammer’s recent working paper, “Hilferding, Woytinsky, and the Fiscal Orthodoxy of Interwar Social Democracy,” published by the Post-Keynesian Economics Society in Fall 2021.

In the essay, Stockhammer reconsiders the so-called “WTB Plan,” a union-backed public works program, which was tragically rejected by the Social Democratic Party (or “SPD”) on seemingly Marxist grounds. During our conversation, we explore the biographies and arguments of two key players in this historical drama: Vladmir Woytinksy, the Russian-born socialist economist responsible for drafting the WTB plan and Rudolf Hilferding, the Austrian-Marxist theorist and politician who turned the SPD against it. Along the way, we consider the stakes and fate of Weimar-era fiscal politics in light of a hegemonic gold standard that ruled across Europe and the United States, growing unemployment and suffering, and the German fascist movement that rose to answer such problems in violent and genocidal ways. Finally, we ponder how unrealized Weimar futurities in the past can help inform the struggle for public full employment today.

Read Stockhammer’s paper here: http://www.postkeynesian.net/downloads/working-papers/PKWP2118.pdf

Visit our Patreon page here: https://www.patreon.com/MoLsuperstructure

Music by Nahneen Kula: www.nahneenkula.com


The following was transcribed by Richard Farrell and has been lightly edited for clarity.

William Saas: Engelbert Stockhammer, welcome to Money on the Left.

Engelbert Stockhammer: Thanks for having me.

William Saas: It is a pleasure to have you. Could you start by telling our audience just a bit about your personal and professional background and how they inform your research and pedagogy? For example, you describe your approach as Post-Keynesian and your work as primarily interested in financialization and financial instability. Could you tell us about your background and how those terms come together for you in your work?

Engelbert Stockhammer: Yeah, I’ll tell you a story that hopefully leads to the Woytinsky paper that we’ll be discussing today. So when I say Post-Keynesianism, I mean critical heterodox macroeconomics and the tension between Keynes and Marxist ideas. It’s about, on the one hand, class struggle, on the other hand, effective demand and involuntary unemployment, but also financial dynamics, financial instability, and how you bring those together. So I’m originally from Linz, which is a medium, for Austrian standards, industrial but provincial town. The only historical significance of Linz is that, in 1934, the anti-Fascist workers uprising in Austria started in Linz. So it is a town with a certain leftist tradition. I should say the workers uprising was heroic. It was the only armed nationwide uprising in Europe against fascism other than in Spain. But different from Spain, our uprising lasted about three days until it was squashed. So while it was heroic, it was everything but successful. But it’s sort of an indication of the radicalism and the backbone of the Austrian labor movement in the interwar years. Indeed, it is in part fueled by Austro-Marxism, which we’ll talk a little bit about later.

So I’m coming from an intellectual family. My parents, essentially, were part of the 1968 generation. I grew up in a left environment, went to an antiauthoritarian kindergarten, and went to university in Vienna. By that time, I was already exposed to Marxist ideas, the Frankfurt School, and what leftist students in the 70s would read. And I would have regarded myself on the radical left. I studied philosophy and economics–economics on the encouragement of my parents that I should also study something useful. But I soon turned away from philosophy because I realized that when they say philosophy, they actually don’t mean Sartre and the Frankfurt School and Marx, but they want me to read Kant and Thomas Aquinas, and I have no patience for this. So I got into economics, but learned more about economics from the political science and history classes. At that time, universities were less commercialized. We were free to take classes from whatever the university offered. And politically, I was actually closer to the Greens, which were growing more radical in the 80s in Germany, Austria, and India. I was involved in student politics in the student unions and so on.

I went to the US to do my PhD. I went to the University of Massachusetts at Amherst, which is one of the strongholds of non-mainstream economics. In that way, they’re essentially for modern types of Marxism. In particular, that means that, at the time, we were excited about French regulation theory and social structures of accumulation, both of which don’t feature very prominently today, unjustly, I think. So when I got to UMass, it had this big internal divide between the postmodern Marxists or post-structuralist Marxists that were Reznick and Wolff, on the one hand, and on the other hand, there was Gintis and Bowles who you might think of either in the tradition of analytical Marxism or rational choice theories, game theory of social conflict, and all sorts of things, all of which was interesting, but it was not what I was coming for. It was not social structures of accumulation, that mixture of taking Marx’s ideas and embedding it in a historical institutional analysis, but using modern statistical and modeling techniques I didn’t quite find interesting because Bowles and Gintis were too much into micro for my taste.

So it’s under these circumstances that somewhat unwillingly I started to become a Post-Keynesian. At that time, I had this premise of what do I do for a dissertation. I was struggling with how to sort of reconcile my ambitions with feasible academic projects. At that time, I had a student subscription to The Economist. So you got the weekly propaganda organ of international capital. And they told me that the real problem of Europe are inflexible labor markets and eurosclerosis. That was the big issue. And the US was great because it has these flexible markets. And in case I didn’t get it, there was writing on the title page and in their headers that told me that the real problem of Europe was the inflexible labor markets.

Scott Ferguson: What year was this?

Engelbert Stockhammer: We’re talking mid to late 1990s. So at some point, I realized they are actually saying there’s a dissertation topic for you here. Let’s take the current mainstream theories of European unemployment. And that was the NAIRU theory, or the non-accelerating inflation rate of unemployment. It was sort of the theoretical underpinning of the whole discourse. And in my view, it was clear they were going after European welfare states in order to break them up. So to me that was part of a neoliberal agenda. And when I talked about these ideas, my Marxist friends told me, “Yeah, it’s a good idea to write about unemployment.” And you have to make clear that unemployment is a systemic feature. In capitalism, it’s unavoidable. And then, depending on how economically oriented they are, you need the industrial reserve army to maintain a certain profit rate for them. I thought that’s crazy. I mean, these guys are going after the welfare state and offering the analysis that unemployment is unavoidable. It’s not unavoidable. Sweden and Austria, which had relatively good welfare states at the time, had lower unemployment rates than the rest. So apparently, you can manipulate it.

In that sense, I became a Post-Keynesian, because the Keynesian framework with effective demand had a specific story about unemployment and testable predictions. I was interested in what Post-Keynesians call conflict theory of inflation, that inflation is the outcome of ultimately unresolved distributional struggles. Initially, it actually was partly developed by Marxists, in particular, by Rowthorn and also by later American structuralists. But it’s one of these heterodox economic theories that you can also use for empirical work. So that was my entry point into this. That is how I drifted towards the Post-Keynesians. And the second entry point also in that story is that effective demand essentially determines unemployment. It’s what the Marxists would call the rate of accumulation, but for the Keynesians it is capital investment. So if there is to be a substantial story that, no, it’s not about labor market institutions, but it’s about demand, then I need a story about demand. That is where financialization became important for me. To me, it was essentially around structural changes in the economy, the shareholder value revolution, or corporate governance changes, and the reassertion of shareholders on higher dividend payments.

But what I emphasize is that that’s not only an outside pressure on firms. The shareholders say, “Hey guys, we want higher returns, we want higher payouts.” But with the fact that firms are regularly reporting to the shareholders, there are organizational changes. So in other words, for me, it was also a way to bring in class struggle into the firm, but not in the Marxist industrial sociology, Braverman-type of analysis of the labor process, but in terms of corporate governance. How do you operationalize what the firm wants? With whom do managers talk to? Who do they report to on a regular basis? And as a side effect, non-financial firms start to become more active on financial markets. Now, part of that is hedging because the exchange rate becomes more volatile. But part of that is they start holding other financial assets or shares in other firms and theories that firms think of themselves as profit centers. And their own investment, whether they are producing shoes, wine, or cars only becomes one branch, and then you branch out, and if government bonds are a higher return, you hold government bonds. So it’s in that sense that I thought of financialization as a change in what firms are doing in terms of taking advantage. 

What I’m telling you, essentially, are chapters of my dissertation. The second one that came out in the Cambridge Journal of Economics on financialization is still one of my most cited papers. So that was my entry into financialization. I then went back to Austria and worked for 10 years at the university in Austria. We actually have a relatively broad heterodox economics program that was quite popular with students and a very lively atmosphere. And I continued to work on these Marx-Keynes tensions. At that time, what was important for me was what we now call the wage-led versus profit-led demand regimes. The Bhaduri-Marglin model, these are essentially synthesis models, where they say the Marxist argument emphasizes that investment is profit driven. The Keynesian-Kaleckian argument is emphasizing that higher wages mean higher consumption does higher demand. In the Marxist world, it’s an under-consumption crisis. These two are brought together in the Bhaduri-Marglin model. I was part of a literature that tried to empirically estimate these models and see how much mileage we got out of them. That literature then started out with those Marx-Keynes synthesis arguments, but eventually became more applied and asked, “Now that we’ve estimated whether the demand is wage or profit-led, how important is it?”

That led us to thinking about neoliberal demand regimes as either expert driven or finance-led. So in neoliberalism, you have financial deregulation, but also if you want anti-labor distributional changes, you have rising income inequality. Now, in a hippie-Marxist world, you would expect an investment boom to follow because you got lots of profits. If they get reinvested, you actually would have investment. That’s not what happened. So we’re saying that, actually, the economic structure, the demand regime, is still wage-led. But you have those distributional changes that, in a way, are integral, so you need other growth drivers. Then, the argument is, in some countries, finance, which initially was associated with stock market booms. But as we saw, there were more important housing booms, because they come with much larger wealth effects and much larger spillover on consumption expenditures and they also have powerful effects on investment. But there was only one group of countries. So in a way, you get a financialized form of neoliberal growth model. But in other groups of countries, say Germany, you get a much more industrial version of neoliberalism, where you also suppress wages, but you don’t have the same financial dynamics. In a way, you rely a lot more on export growth.

So the finance-led versus export-led distinction was an important one here. And that is an analytical framework that recently in comparative political economy, meaning outside economics, has gained a lot of interest. But you see again, it is that Keynes, Kalecki, Marx, and Woytinsky tension that’s often lurking in the background of this. In 2010, I moved to London. Unfortunately, the heterodox economics degree was shut down in Vienna, essentially because there was a university restructuring and the neoclassical wing of the department used that to clean the house. But anyways, for me, a big part of the reason was personal because we were looking for two academic jobs in one city. In Europe, it’s easier in London than elsewhere. As I moved to London, and essentially continued along the lines of work, following up on that, I’ve worked a lot on the Euro crisis. Again, there were neoliberal growth models interacting, but then the question arose as to how does the state react? And what’s the role of the state in particular in the Euro crisis? To what extent is that equation of different development of unit labor costs in different parts of Europe? To what extent are there real causes behind the Euro crisis? To what extent is it ultimately financial issues?

There was the real estate boom in southern Europe and the fact that the ECB does not support the member states. So with both on the left and right, you get debates about the real financial factors, the driving forces behind the Euro crisis. Finally, I became a professor at King’s College where now I am a Professor of International Political Economy. Funnily enough, I’m not an economist anymore. Again, there was a university restructuring at Kings. The program I was involved in got decimated. But it was also good for me to move out of economics, sort of half because conditions weren’t good, and half because I was actually happy to get out of economics and talk more to social scientists. So while the Woytinsky paper that we’ll be talking about is a side of my research, it actually ties back to what I’ve been thinking about for quite a while.

Scott Ferguson: That’s fantastic. Thank you for that elaborate introduction. So as you’ve begun to flag, we’ve invited you on the show specifically to discuss your fascinating 2021 paper that’s titled, “Woytinsky, Hilferding, and the Fiscal Orthodoxy of Interwar Social Democracy.” In the essay, you reconsider Wladimir Woytinsky’s WTB plan, and we’ll unpack what that is, which, just to quickly gloss over, is basically a union-backed and debt-financed public works program, which was tragically rejected by the Social Democratic Party in Germany in the Weimar period. And it was done so on seemingly Marxist grounds by some of the leaders of the SPD. So I think you’ve already begun to answer our kind of leading question, but I guess we want to know what initially piqued your interest in this particular episode in the history of Western Europe, social democracy, the struggle for socialism, etc? And then, what would you say your key claims are in that paper?

Engelbert Stockhammer: Yeah, I am delighted that someone finds the paper interesting. I’m totally fascinated by this episode and by Mr. Woytinsky, specifically. So first, what piqued my interest. Part of the interest is, actually, politically and not directly related to my research, and that’s the Austromarxist tradition. When I left Austria, I actually wasn’t particularly intrigued by the Austromarxists. As I became more social democratic while in the US and started to more appreciate what the Austrian social democrats had achieved, I, at some point, started to read what they did. And as I was working on finance, Hilferding’s Finance Capital, of course, is one of the big early Marxist works on finance. It’s a fascinating book. I presume we’ll have some chance to talk a little bit more about it. So Hilferding is trying to restate, in Finance Capital, Marxist theory and thinks about what it means for finance and banking. He will restate, in a way, a commodity theory of money, which I will argue leads to the gold standard. But the Austromarxist movement was much older. Hilferding was one of his most famous proponents, but the Austromarxists were, probably next to the Russians, at that time the most dynamic.

That time is very early 20th century, around the first World War, one of the most dynamic and innovative parts of Marxist thought. It sort of anticipated some of Gramsci’s ideas, in particular, on power, democratic ways to socialism, and notions of cultural hegemony. And Hilferding tried to conceptualize what he called organized capitalism, shifts in capitalism, and a changing role of the state in capitalism. They were also very deeply rooted in society and the working class movement. So let me give you a banal example of that. When I was 13 years old, I used to play quite a bit of chess. So for a nerdy young boy, the obvious thing is to play strategy games, and before computer games, one would play chess. So in Linz, some Austrian town, there would be the Linz chess club, which effectively turns out to be the bourgeois, upper-class, and cultivated one. There was a worker’s chess club, which essentially was the Social Democrats. And there was the chess club which was closer to the Communist Party. And despite the fact that at that time I had very little ideas about communism, I was part of it because my parents have connections to it. What I’m saying is even something as trivial as chess was organized along those big political lines. Imagine what that is like for football or for the things that take much larger constituents.

So they were deeply rooted. These were some of the best organized working class movements that the world has seen. And they were in a way quite down to earth. Vienna had those massive public housing projects, they did all sorts for schooling, and so on. But they also were intellectually leading. Hilferding comes out of that. And that movement gets essentially smashed by fascism. In the 1930s, you have this weird episode where Hilferding, who in some ways I admire, becomes the major economics spokesperson for the Social Democrats. He rejects a proto-Keynesian public employment program that Woytinsky has developed. And initially, it’s very odd. Why would you do that? Why would the forefront of the reformist, but still socialist movement, why wouldn’t they pick up on Keynesian ideas? On some level, that’s very odd.

And then, at some point, in reading about it, I came across this passage in Woytinsky’s autobiography, which is a fascinating thing. I think you’ll have a question afterwards about Woytinsky so I won’t go fully into that. But this guy is fascinating. He became the main author of that employment program for the unions. He’s one of the major economists for unions. But if you go back, he was a Russian socialist student in 1905 when the first Russian revolution took place. He was one of the student leaders of the Petrograd uprising. And I don’t kid you, he became the leader of the Petrograd Soviet of the unemployed, which of course, today no one knows about. And what did he try to do for them? He tried to implement a public employment program. So in other words, you have a socialist Keynesian, or proto-Keynesian, in 1906 in Petrograd at the height of the first Russian revolution. So once I had that, it was irresistible. You also asked me to briefly sketch out the main conclusion. So the WTB program that Woytinsky developed…

Scott Ferguson: Can you define why it is called the WTB program?

Engelbert Stockhammer: WTB stands for the three main authors: Woytinsky, Tarnow, and Baade. Tarnow and Baade were a union leader and a SPD member of Parliament. So essentially, Tarnow is the union support for that because the unions eventually supported the program, and Baade enabled the Social Democratic parliamentary faction such that it could get a hearing there. They essentially wanted to create a million jobs and have a magnitude of three percentage points of GDP. In other words, not completely off the scale, but something that we would recognize as substantial. So I’m investigating two things in the paper. One is how does Hilferding’s rejection of that program relate to his way of perceiving Marxist economics? Now, I purposefully don’t want to get into the debate on whether it’s proper Marxism. It’s his Marxism and he was an important Marxist at the time. And the conclusion will be, actually, his version of the labor theory of value ultimately endorses, or regards as completely normal, a version of the gold standard. Now, that’s a completely non-trivial statement.

Once you’ve read Polanyi or any contemporary economic history debates, the gold standard is interpreted as a mixture of an exchange rate regime, but also it comes with a policy package. The target is to meet the exchange rate to gold. You have to subordinate monetary and fiscal policy, ultimately, to the goal of maintaining that exchange rate. So the gold standard is a shorthand for orthodox economic policies. And Polanyi, of course, in The Great Transformation, is most outspoken on that. But it’s also clear in Barry Eichengreen, one of the most eminent economic historians. He was essentially saying the gold standard was inconsistent with parliamentary or modern democracies. The gold standard could run as long as you had an elite or census-weighted election system where the elite could make up their minds. But if you want to justify your policies with respect to the entire population who might be affected by unemployment, it becomes unsustainable. So for Eichengreen, there’s a fundamental tension between democracy and the gold standard. And for Hilferding, not realizing that will be, in my view, a devastating failure. So the argument here is that it is rooted in Hilferding’s Marxism.

But then, in a way replying to some other debates, I’m also asking, how much was German democracy an outlier? That is particularly replying to a very interesting book, I should say, by Sheri Berman, The Social Democratic Moment, where she contrasts Swedish and German Social Democracy. The Swedes are interesting precisely because they were the ones that endorsed Keynesianism. They were divided on Marx, but were quite leftist still on a lot of scales. And of course, they were then leading in establishing the most developed welfare states. But early on they endorsed versions of Keynesianism that got off the gold standard and did deficit spending. Berman is essentially arguing the German Social Democrats were too Marxist. They were too orthodox both in their theory of the state and in their theory of how the economy works. Now, the flip side of that, which she doesn’t fully draw out, of course, is that the less Marxist the Social Democratic Party is, the more you would expect them to be open to Keynesian policies.

So then, in the final part of the paper, I look at Britain, where you find the exact same problem that Hilferding and the Social Democrats have: what should you do in a recession? Should you do deficit spending? Should you stay orthodox? Britain is almost the opposite of Germany because they did not have a Marxist tradition. Ramsay MacDonald was all sorts of things, but he was not a Marxist. But you also had Keynes and you had the liberals who Keynes supported, who were campaigning explicitly on a public spending platform for the election. So why is the situation in Germany very politically difficult? In terms of implementing such a program, the Labour Party actually could have done it because that’s what the liberals had campaigned for. But they essentially did the same as Hilferding. So I’m saying it’s not just about Marxism. Marxism was distinctly unhelpful with the Hilferding version there. But the roots ran deeper. In part, it is the pressure group mentality of parts of the labour movement. In particular, the unions and the inability to develop an appropriate theory of socialist reform and transformation of the capitalist system, but also specifically the capitalist state and how we can use the state for our purposes.

William Saas: This is excellent. As you’re talking about Woytinsky and Hilferding, it’s hard for me not to see your story in Woytinsky’s story a bit, going back to your description of looking at the theories of unemployment in European countries, and encountering the Marxists who were like, “Well, unemployment is inevitable.” It’s almost a law of capitalism. And you go back and look at Woytinsky encountering him making what seems to be a very reasonable, sensible, and important suggestion and policy proposal, and encountering again, another kind of unexamined assumption that the commodity theory of money is an obstacle. So I don’t know if you see that reflection of your own experience in the experience of Woytinsky and maybe that’s a part of the draw of yourself to his work? But in addition to that, I wonder if you could help us better understand the context into which Woytinsky is making this proposal? What was the situation in Germany? How did they get there? What was economic life like after the Treaty of Versailles and following the German defeat in the first World War? What else was happening in Europe?

Engelbert Stockhammer: Yeah, I think it’s important to get some bit of historical context. Now, on the economic side, it’s important to realize that, for Europe, the interwar years, by and large, were an economic disaster. It is quite different from the US where you often speak of the roaring 20s, where you had a boom and rapid technological progress. You also had financial bubbles developing and so on, but you had very strong growth. In Europe, it was a mess. It was a mess, politically. It was a mess, economically. It was a mess, financially. I started with the finances and that of course brings us to Keynes and his economic consequences of the peace. The Versailles Treaty, essentially, signed culpability for the world to Germany, which isn’t entirely wrong, but probably a bit overstated. They also imposed reparations on Germany. And while reparations morally make sense, or may make sense, Keynes, of course, pointed out and resigned. He was one of the negotiators on the British side advising the finance ministry for the Versailles negotiations. Keynes was pointing out that, if Germany were to pay these reparations, it first of all would require massive export surpluses.

Now, these export surpluses would require other countries, such as Britain, the US, and France, because who else would Germany trade so much that it has massive foreign exchange from that? They would have to have massive current account deficits. In other words, employ less people because they’re producing less. So he says, that’s not gonna work and then there is the issue of scale. The European countries at that point are settled, overburdened with debt, and that debt is sovereign debt, but it’s essentially related to the war and it’s to the US. So we are in a situation where Britain, while still, in a way, the major empire, and London and the Bank of England is the financial center, actually, in terms of its balance sheet, is in no position to play the role of informal lender of last resort. And while we talk about the gold standard, of course, you can make a good argument that, actually, it was always a very managed gold standard. It was really a gold plus sterling standard, because the Bank of England, to some extent, was managing things already in the 19th century. But Britain, at that time, was not in a position anymore to do that. But all the countries tried to get pegged to gold because that was the normal. That was proper economic policies and structures, both in the Ricardian commodity money theory, but also implicit in the Marxists.

Although, they don’t usually like to point it out. Because money is also a produced commodity. I mean, if you get through the first 200 pages of Marx’s Capital, gold is taking the role of the general equivalent, i.e. money, precisely because it is a produced commodity, which embodies value and thus can represent value. For the Marxists, that is important because if that were not the case, if the money was just a piece of paper or accounting entry, you essentially have a massive case of unequal exchanges because you’re all the time exchanging goods against things that are intrinsically worthless, in which case, there’s no change of equivalent. Now, for the Ricardian, or the Liberal tradition, there’s other things, other reasons why that’s important. It’s essentially to simplify the barter economy. All the countries try to get pegged to gold, but that implies austerity policies when you have a crisis. So whether it’s Britain that enters gold with an overvalued exchange rate, which Keynes was critical about, or when Germany tries to get on gold, and at the same time, pay the debt, the debt creates permanent tension and permanent capital shortage. And by capital, we really mean US dollars shortage because they are indebted in dollars and that creates tension throughout the period.

So in Europe, we have high unemployment in most countries throughout the 20s, and thus social tensions remain high. You have a quite fragile–I am talking about Germany, here–you have a very fragile political system. You have a massive social democratic movement that’s deeply rooted in society, but only in certain segments in society. It’s essentially the industrial towns. They made very little inroads on the countryside. You have old elites still being important in Germany. That means the old landlords of the second serfdom in Eastern Europe, in Prussia, that are still dominating part of the state apparatus, in particular, the military, and they were the ones that initiated the first World War, or contributed to it, and they are still in power. You have a strange alliance of industrial capital and heavy industry with those reactionary landlords, the reactionary countryside, that this market had forged, but it maintains its way into the 20th century. And initially, you have quite marginal the rise of what would later become fascism. Now, the labor movement is this tragic divide with the Russian Revolution and it essentially cuts right through the Social Democrats.

In Germany, that takes particularly nasty forms, because it’s essentially under a German right-wing chancellor in the Ministry of Defense, Noske, that did the Freikorps, which are essentially proto-fascist military units that are not under military command when they act. They executed Rosa Luxemburg and Karl Liebknecht, who are the leaders of the young generation of the radical left. Now, that’s before we have communists. That’s the Spartacus League, which gave the name to my chess club in Linz. They were not at that point communists because the Communist Party only gets founded later. But they’re still Social Democrats, or the radical wing of the Social Democrats. Hilferding, as we’ll see, is part of the independent Social Democrats that split because of support of war credit from the majority Social Democrats. So you have an environment rich in social, political, economic, and financial tensions. It’s brewing up. You have these tensions maintained through the 1920s. Then, from 1929 to 1931, the global financial crisis hit. In Germany, you get bank failures from 29 to 31. In a matter of months, the third largest German bank goes bankrupt and unemployment is then rising sharply in a matter of over a year from two to six million people, if I remember the numbers correctly. I’m not sure that I fully addressed your question.

Scott Ferguson: Yeah, you did and it really puts into sharp relief what a massive union-backed public works proposal and program would mean in an intense situation like this. I think you made that really clear and vivid. I’m wondering if we can circle back and talk a little bit more about Wladimir Woytinsky and his fascinating autobiography. So you told us a little bit about his origins, but maybe you can go a little bit more deeply into his story and where he comes from and where he goes? It really is fascinating.

Engelbert Stockhammer: Yeah, I think he’s brilliant. I think someone has to make a movie about him. So Woytinsky is a Russian Jew. He comes from an intellectual background and became a student leader in the uprising, the first Russian revolution, in 1905 and 1906. He gets involved in that and he’s, at that point, actually working with the Bolsheviks. I have to say I was surprised that he didn’t mention the Bund at that point. Now, we of course nowadays think of the Russian Social Democrats in terms of Bolsheviks and Mensheviks, because that’s what matters in the Russian Revolution. The Bolsheviks in 1905 and 1906 were a non-category. Even Trotsky didn’t know that he was a Bolshevik or would be. But what you have is the Bund, which is a Jewish socialist organization that is much more along the lines of European social democracy, meaning that they are a mass organization. They are not clandestine, avant garde, or revolutionary organizations like the Bolsheviks would be later. Also, they, like the Austrians, would sort of have organizations throughout society and they play in the open. They’re not clandestine, conspiratorial organizations. And they’re a main driving force of the revolution.

But I actually don’t remember Woytinsky mentioning them. They are mostly Jewish. And they would become a wing of anti-Zionist Jewish international socialists. In Britain, the Jewish Voice for Labour, is still an echo of it, and that may not concern you, but it was important for us in Britain because the right wing went after Corbyn under the heading of he is an anti-Semite. And the Jewish Voice for Labour, of course, was up in arms against it, because for them being a Jewish socialist, never meant fully endorsing Israel, necessarily. So he is part of that radical tradition. He works with the Bolsheviks. He’s in some ways very pragmatic and wants to help and start building work around the Petrograd Soviet and unemployment, which I understand he helped to set up. To do a little bit of public employment, but mostly they provide public food kitchens and other things. So they’re doing actual work on the street. But of course, this whole thing doesn’t live long enough to make much of a difference, because that revolution gets squashed and it gets squashed brutally. Essentially, the tradition of the Bund gets almost wiped out because the mass organization and the internal democratic structures are just no match for the authoritarian Tsarist regime that we have afterwards. And that creates an environment where the Leninist organization actually becomes effective and it will then later become important in the Russian Revolution.

So Woytinsky was sent first to prison and then to Siberia for 10 years. And in Siberia, in spring 1917 with the bourgeois phase of the Russian Revolution, he and tens of thousands of other political prisoners get released from Siberia, and he goes back to Petrograd to work for the Petrograd Soviet again. Now, we are in spring 1917. So when I say Petrograd Soviet, we mean Mensheviks, we don’t mean Bolsheviks. The Bolsheviks become strong in autumn and their rise is rapid. And Woytinsky, in his autobiography he can be a little bit self congratulatory at times–he has a life that’s worth aggrandizing, I have to say. So it’s not always fully clear where his interpretation kicks in. But initially, he seemed quite indifferent to work with the Bolsheviks and Mensheviks because he’s not ideologically committed enough. Although, I don’t know whether that was true of his younger self at that point. He gets involved with the Soviet. He works with them in various administrative capacities. And when the Bolsheviks got to power, essentially, he and the Mensheviks had to flee because the Bolsheviks were not very forgiving. It’s clear that he’s coming out of social democracy, that he has a broader notion of democracy than the Bolsheviks.

So he flees to Georgia, which for two years or so is an independent socialist republic. It’s dominated by the Mensheviks. He joins, but wants to be in the diplomatic service of Georgia and is sent abroad to essentially advertise the existence of Georgia to other states, such that they will recognize it. So he is sent to Italy. There’s only two problems here. One is that the Bolsheviks take over Georgia and Mussolini takes over Italy. He has to leave Italy and eventually comes to Germany where he works as an applied economist. In economic history, he is cited because he has a very descriptive book, Die Welt in Zahlen, which is essentially a statistical compendium that economic historians cite quite a bit. So he’s a pragmatic applied economist. If you read his work around the WTB plan, it’s essentially driven by the urge to do something. You won’t stand by when you see the working class being unemployed. He has, on the one hand, human empathy, but also political aims. For him, as long as you have mass unemployment, you may get rebellion out of desperation, but you will not get it properly. You don’t get on the offensive as long as you have mass unemployment. You need to offer specific things to those people in it, as opposed to…

Scott Ferguson: So he’s not an accelerationist.

Engelbert Stockhammer: No, not at all. He’s the opposite. You need to give something tangible to them, as opposed to the promise of a socialist utopia. And his work, then, when you read it, it is quite empirically driven. I mean, there’s a lot of data in there. When he discusses the employment effect and the costs, what are the average costs of most of employment, not very surprising, it would be in construction, housing, roads, and bridges. If we are talking 2008, it is all in there. He looks for the sectoral hourly wages of workers, of bricklayers, of people in the construction sector. What is the state currently paying for unemployment insurance and benefits? He wants to get his data on that straight. What he’s doing there is very clearly proto-Keynesian. He makes a sustained case that you should do that even if it is deficit financed. Analytically, he is not quite Keynesian. There’s no well understood theory of the multiplier. I mean, he was aware of Keynes. He read him. He also had a letter exchange with Keynes. He was writing in 1929, well before The General Theory of Employment, Interest and Money, way before Keynes had the theory of the multiplier straight. So my ask here is high, but in that sense, theoretically, it wasn’t fully advanced. But in terms of economic policy, he was there and that’s also recognized in economic history literature.

The earlier version of the WTB plan was much more monetary financing. It was much more tweaking around the gold standard, the reserves that banks would hold, and thus were vulnerable politically in that you couldn’t quite do that without the consent of France and the US. So initially, he wanted an international program, not just a German one. As it became clear that that was not forthcoming, he more and more moved towards domestic financing where there would be, if temporary, financing by the German central bank. So in other words, it is to some extent a central bank financed public employment program. Woytinsky then tries to get it through with the Social Democrats. He manages to convince the German trade unions, which is non-trivial. It’s non-trivial in the sense that, in the division of labor between the party and the unions, and they were closely intertwined, the division of labor essentially was that the unions do the workplace organizing, they strike for higher wages, but legislation is by and large the business of the party, and thereby also macroeconomic policy. And certainly, whatever international currency arrangement is not traditionally the territory of the unions. But in a way, they got desperate because it was their members that got unemployed, and they were losing members when unemployment was spiking, both to the communists but also to the Nazis. So they felt the need for action, but they’re also, in some ways, more pragmatic and less ideological than the Social Democrats.

Now, in some ways, they were more to the right politically than the Social Democrats. But in this case, they were more Keynesian. Hilferding, he was the main spokesman. He was twice finance minister and, after Finance Capital, was sort of the Marxist authority, and then followed in the footsteps of Karl Kautsky as the main ideologue of the German Social Democrats. He essentially was blocking it. He was shooting it down both in the front but also behind the scenes in the Social Democrats parliamentary faction. I presume we’ll talk a bit more about Hilferding. So it doesn’t go anywhere. The Nazis will pick up on it, but mind you all this is happening in 1931 and 1932. So this is literally a year before the Nazis take power. And then, in 1933 Woytinsky of course has to leave the country. I mean, if you’re a Russian Jewish socialist, you couldn’t be much further up on the hit list of the Nazis. So he gets out just in time and goes to Switzerland, to Geneva, and works there for what would become the ILO, the International Labor Organization. And what he does for them is he develops public employment programs. He doesn’t get a permanent job there because the Soviet Union is blocking it. Because they don’t want a Menshevik counter-revolutionary in the ILO. So he doesn’t get a job and individually goes to the US. In the US, he starts working for the Roosevelt administration. He works for the Bureau of Labor Statistics, and labor statistics is exactly his home territory. On the BLS webpage, you’ll still find links to some of his work.

However, I have to say that the story that I’m telling you gets tarnished. I mean, he’s a Menshevik. A lot of his comrades get killed by the Bolsheviks. So understandably, he turns anti-communist. But he goes further. He endorses American liberalism, and at the end of his life, in the 1950s and 1960s, goes to Latin America and to East Asia to preach the advantages of liberal capitalism. So this guy ends up going to, I don’t know, Brazil and Vietnam to tell him how great it is. So it’s a bit painful if you read the biography, but it’s a fascinating story. But ultimately, the reason why I’m so fascinated by it is you glimpse the possibilities of a socialist Keynesianism there. We tend to associate Keynesianism, and my Marxist friends would say this, as an attempt to save capitalism, saving capitalism from itself. There’s no question that this is what you can use Keynesianism for. And this is effectively what has happened with the global financial crisis of 2008. I would argue, with the New Deal, it was more about transforming capitalism than about saving it, or at least as much. So in my view, you can use Keynesianism for all sorts of things.

But when Woytinsky was doing what he was doing, you didn’t have Keynes yet. I mean, he hadn’t written The General Theory of Employment, Interest and Money yet. It wasn’t necessary to associate Keynesianism with the Liberal Party in Britain. Unknown to everyone else because he was writing in Poland, you had at the same time, Michal Kalecki, developing big parts of Keynesian analysis, the multiplier effect, in particular, very keenly already in there with a much more Marxist background. You have Woytinsky, who, whatever he does after, is clearly a serious, social democratic reformist, as the Austromarxists at that time were. So at that time, history was a lot more open. If you could imagine, if Hilferding had fully endorsed it, and then said, actually, this is complementary to the state theory that he and Otto Bauer had been developing. If we wanted to endorse bourgeois parliamentary democracy and the Social Democrats, of which Germany was the only party who was unreservedly in favor of parliamentary democracy, and if you paired it with a Keynesian socialist agenda, then actually that could help us to do what we’re doing. So it’s that moment of openness that to me is so fascinating. Instead of having the firm association of Keynesianism as something pro-capitalist, it’s about having it as part of a socialist agenda.

Scott Ferguson: I’m curious, in his writings, did Woytinsky cite precedents? Did he cite Louis Blanc and the French workshops or anything like that?

Engelbert Stockhammer: I’m not aware of that at all. There’s, of course, big parts of his Russian writings that I can’t read. But that’s not his style. Woytinsky is not an ideologue, I think, both in his own mentality, but certainly in the way he wanted to come across. I mean, he is also a proto-Keynesian in terms of the technocratic attitude. He wants to say, guys, here are the numbers. There are 6 million people unemployed. It’s not going to lead to inflation if you do public employment, because there’s 4 million more unemployed people than you had two years ago. So you can employ up to 4 million without inflationary pressure. And these are the costs that you will get given the wages. So that’s his discourse. It’s much more technocratic. And it’s also the discourse, across the political spectrum, that a lot of the Keynesians would adopt in the coming years in the US and Britain.

William Saas: Why didn’t Rudolph Hilferding see Woytinsky’s work as complementary? What conclusions do you arrive at in your read on the biography of Hilferding?

Engelbert Stockhammer: That’s a very good and fascinating question. My short answer will be it’s deeply rooted in his Marxist theory. But let me give you the long answer, just because it’s so fascinating. So Hilferding is part of the Austromarxist movement. So he’s coming out of the Austrian social democracy and, in particular, a fascinating group of essentially young, radical students in Vienna. At that time, it’s Otto Bauer, Karl Renner, Max Adler, next to Hilferding, and they will have their own journals. And Vienna, at the time, is an intellectual hot house. I mean, you have the grand guys of the Austrian school there. You have Böhm-Bawerk there. You have von Mises there. You even have Hayek there. I’m not even getting started with the philosophers and artists. But so, Hilferding and those young Marxists, they sit in the seminars of the Austrians. And one of the first things that Hilferding writes is a reply to Böhm-Bawerk’s criticism of Marxist theory. And it’s still widely cited. I actually don’t think his writing there is particularly good. But it’s still impressive. It’s sort of good Marxism. While Böhm-Bawerk, of course, is very polemical and critical, he has some serious points, in particular, around the transformation problem.

The tension between what the Marxists call prices of production, where you have uniform profit rates, and the labor values, where you don’t have uniform profit rates, where it’s all about labor values. That is a real problem for Marxist economics. That would become a big issue in the 1970s and lead to all sorts of value theory wars. But Hilferding essentially says Böhm-Bawerk is too much concerned with explaining relative prices. But as Marx says, we’re really interested in exploitation. It doesn’t settle it. It’s correct, but it doesn’t settle the criticism that Böhm-Bawerk raises. But Hilferding, he studied medicine. He’s a doctor. This is intellectual enthusiasm and a political commitment that gets him and others into these debates. And it still is substantial and widely cited work. But then he writes Finance Capital, and that is really an impressive work. Again, it’s outside his own studies. It’s not that this is his PhD. He does it beyond learning about bones and muscles and the like. What he does there is a restatement of Marxist theory, but it takes finance very seriously. He takes finance seriously because, in the German experience, finance banks are much more important than in the Anglo Saxon countries, in particular, because Germany is late industrialized.

The banks are used to finance heavy industry and pharmaceuticals. They need lots of capital investment, so they need big things. So they become important. But because that’s important, he has to go back and ask, where does money come from? What is the role of money? What’s the role of things? And a lot of what he writes there is very, very sharp and innovative. You can read discussions of options and option pricing there, net present value calculations, it’s all in there. We all had to read up around the global financial crisis. He also has a theory of endogenous money in there. In his case, it’s around bills of exchange. And with bills of exchange, actually, more of them are issued in a boom, because then there’s more demand for them. And more of them are issued, because, and here comes the Keynesian element, because the business outlook is more positive and, therefore, the liquidity preferences decline. But for Hilferding, that is the action around the supply side fundamentals that are given by labor values. So there is a dynamics of the financial sector, and it’s procyclical, it intensifies the boom, and consequently, the crisis. But it is if you want a cycle around the labor values and the production side.

Ultimately, in his story, you need gold, because you need the real stuff that has changed in value to represent money. And where you see that is in international transactions. In other words, it’s the gold standard. So he explicitly says what we have here is the experimental proof of the labor theory of value, an objective value theory. It’s that, internationally, you need gold for transactions. So the Keynesians say this is a policy regime that has all sorts of complex implications. Hilferding says, no, that’s the true nature of things of the capitalist relations of productions. And his crisis theory, I have to say, is, unfortunately, quite disappointing to read. Because it’s essentially a restatement of Marx’s analysis of the contradictions of capitalism that essentially say there are unresolvable contradictions, and eventually, they will be so bad that there will be a socialist revolution. It’s not the crisis theory that gives you any entry points for economic policy. It’s not a crisis theory that would help you if you’re the finance minister in 1929. They won’t guide you to what you can do. It’s essentially a story of capitalist doom and self destruction, that you can watch and then afterwards do the revolution and take over the ruins. 

But then, he also has a fascinating analysis of international aspects, and that’s an implicit reply to Bernstein and to the revisionists, where he emphasizes that those finance capitalists, because they also get tied up with the state, will give rise to dangerous imperialist dynamics. Of course, Lenin would draw very heavily on that later. So in other words, this is, at a time, really cutting edge Marxism and really cool in terms of what it weaves together. Hilferding then goes to Germany. He leaves Austria and works closely with Kautsky. During the first World War, he keeps party discipline but he is highly critical of the Social Democrats support of the work, precisely, because of what he had written in Finance Capital. And he eventually, with two handfuls of other social democrats, gets kicked out of the Social Democratic Party because they are too critical of the SPD’s support of the war credits. So Hilferding, and ironically, also Bernstein, the main revisionists, are then part of the independent Social Democrats. They would exist until, I think, 1922. And in the last elections they ran, they were almost as strong as the Social Democrats. They were, essentially, the antiwar and more radical faction. They would then split over their position with respect to the Soviet Union and over communism. And they would split halfway through, in part joining the communists and part joining the Social Democrats. 

Hilferding also develops the concept of organized capitalism. So he keeps up with what’s going on, and notices that the state is becoming more and more important and involved. In particular, during the war, but he says it also goes on afterwards, precisely because you have to those big trusts and industrial groups organized by finance capital. They get so big that they start cooperating with the state. And that, for Hilferding, is an entry point. Because, at some point, he says, nowadays, essentially, if you nationalize the leading banks, you have nationalized half of the big industry. So for him, that’s an entry point for socialist policy. Economically, this is stabilizing. The concentration is stabilizing capitalism because it stabilizes prices and gives more if you want a rational planning aspect to prices. Hilferding, because he’s a reformist, is one of those that advocate for the Social Democrats to reach out beyond a blue collar working class. And that in interwar Germany, but all over Europe, means reaching out both to white collar working class but also to the countryside and to the peasants. Other than in Sweden, that remains a big unresolved issue for all social democratic parties, that they’re essentially not getting into the countryside, which, at that time, electorally is a big problem.

So in some ways, he’s very open and supports parliamentary democracy and argues for a parliamentary role to socialism. In a way, his state theory is advanced, or it goes beyond orthodox Marxism. But his economics doesn’t. And then, when he finds himself in these debates in 1929, 1930, and 1931, he essentially can’t understand how you want to get rid of all this without the gold standard, because that’s ultimately the natural thing. And you can’t solve the fundamental contradictions of capitalism with a bit of government spending. So in that sense, the Marxist theory here, rather than enabling sort of creative strategies, becomes a big stumbling block that essentially allows them to not see that possibility for Keynesian policies, or instrumentalizing Keynesian strategies for a socialist agenda. And when he comments in the main social democratic newspaper before that, on the breakdown of the gold standard in Britain, he uses that as an argument to say, “Well, you see, it only leads to disaster if you try to do funny things. You first of all need to get back to gold to do anything.”

I have to say two things about the gold standard. From an economic theory, but also from a sociological theory of money, it’s fascinating how the gold standard goes down in Britain. It’s a strike in a military base. It’s the naval fleet that goes on strike against their wage cuts. Now, these are not regular workers. These are soldiers. They are not allowed to strike. So what you have here is a mutiny. It’s not just a strike. It’s a mutiny. And with all the debates that happened, all the Keynesians that told you that the gold standard is actually a bad idea, it’s when the soldiers start a mutiny that the gold standard breaks down. So think about it. Doesn’t it tell you something that international money and exchange relations has something to do with class struggle? They’re striking about wages. But also, they have a deep relation to the state. It is once the military operators go on strike that the gold standard breaks down.

Admittedly, going off the gold standard in Sweden or the US is a different story, but it’s hard not to see that, once you’ve thought a little bit about what money is, that this is something very deep to do with the state. But there’s also a class conflict dimension to it. But Hilferding doesn’t see any of it. The gold standard is the natural order of things because money needs to be backed by value and gold is a produced commodity, thus it’s okay. That then blocks the WTB plan for the Social Democrats. The Nazis are not shy. They take it over, partly because they’re interested, partly, because they see that this can drive a wedge between the unions and the Social Democrats. At that moment, the Nazis tried to flirt with the unions. A few months later, they put them into the prisons and concentration camps, of course. But at that time, they used that. Essentially, the Social Democrats don’t go anywhere with it. And within a few months, they are also in the prisons. And, of course, Hilferding dies in a Gestapo prison in 1941.

Scott Ferguson: And the Hilferding argument, on behalf of the party, was that we cannot do anything. We must let the crisis play out. And that’s what happened. I mean, maybe this clearly wasn’t the only causal factor but it is tragic and haunting to think of what support for this program might have led to instead.

Engelbert Stockhammer: What you said is perfectly correct. There’s two complications that I would want to add there. I mean, it’s very clear in Hilferding and his close collaborator, Naphtali, there is an understanding that you have to let the crisis run its course and afterwards you can do something. Naphtali explicitly says it’s in the boom that you can try to do reforms. You don’t fix the capitalist crisis, you let the market forces work itself out. But there’s two complicating factors. The first is hyperinflation. Germany, of course, had experienced, as part of its monetary troubles, hyperinflation in the early 20s, which was devastating, I would argue, more for the middle classes than for the working class. But of course, it led to big scars. So that argument gets rehearsed. It gets rehearsed at a time when it becomes patently absurd. So Naphtali is literally warning in late 1931 against the danger of public employment because it would be inflationary. In 1931, I looked up the numbers for writing the paper, you already have minus 10% inflation. You have serious deflation. So the deflation is already fully biting. It’s clearly not the issue.

The other issue is foreign policy and the war reparations. The Social Democrats did accept the Versailles settlement. So in principle, meaning with the qualification it has to be bearable for Germany, they were committed to war reparations. And going off the gold standard, or giving up on austerity in that context could also be seen as an international affront against France, in particular. So it is more complicated, but at the core is this idea that capitalist crises will fix themselves. It’s very different from Woytinsky. Woytinsky is clear about the debt deflation theory that Irving Fisher would formulate. That is, in the current situation, when Germany is over indebted, you want more inflation, not less. It’s part of getting out. You also don’t want 1 to 5%, you actually need serious inflation to help firms deleverage.

William Saas: So previous historians, and people who’ve studied this moment and the WTB plan, have interpreted it differently than you have. Can you talk about those interpretations and where they might have gone off course? What are they missing?

Engelbert Stockhammer: I’m not sure there are a lot of substantive differences. Because I’m interested in the possibility of a socialist Keynesianism, I have a different angle and a different context. But the WTP plan is not widely known outside a few professional economic historians. I mean, once you’re sensitized to the term, you essentially see it in all discussions of the Great Depression in Europe. If you look at Kindleberger and Eichengreen, it’s there and they would essentially all agree, if there was any serious German Keynesian plan, it’s the WTB. It wasn’t quite the only one. There was also a somewhat less important one that was coming out that goes in a similar direction. So that’s there. If you read Harold James and others, they all essentially regarded it as, in principle, economically viable. There’s big debates on whether it politically was ever viable. But it was an economically plausible, proto-Keynesian strategy. It’s also clear with the authors, Eichengreen, for example. I mean, these are Keynesians. They’re coming out of the technocratic traditions. And for them, in a way, the puzzle is like, why didn’t the Germans do it?

Where I’m different is, I want to say that there would have been a specific socialist route to that, that comes as part of a grander, socialist strategy, and in particular, one that would have complimented the Austromarxists. The Austromarxists tried to formulate a radical socialist but democratic parliamentary strategy. And Otto Bauer, for quite a while, was heading what is often called the Internationale 2.5. They just didn’t want to accept the split between the communists and the Social Democrats, which in 1920 or 1921, is very honorable, and actually not completely absurd. Of course, a few years later, it is a futile attempt. But if you want to do such a socialist transformation, your problem is what do you do with the state? How do you instrumentalize it? That was a big problem for socialists at that time, and for good reason. I mean, their experience of the state has been a very nasty one. In the 1880s, with the late Bismarck, the Social Democrats were outlawed. They actually weren’t fully outlawed, because there were some states where the Social Democrats weren’t outlawed, except for the national elections. But the regional elections, they were allowed and so on.

So the details are complicated, but it was clear that there was repression. It was clear that the old aristocratic elite had not only no sympathy, but also no tolerance for socialists. And in that sense, of course, it’s difficult how you can think of the state as something positive that you can use. And initially, that’s, of course, a critique of a lot of the Marxists. A lot of the reformists of the Social Democrats were mostly ad hoc. I mean, it was collective bargaining and unemployment insurance and state pensions, but it wasn’t really part of a reformist strategy other than the Bernstein version, which essentially says the state is relatively neutral, which obviously doesn’t do justice to the complexity and nastiness of actually existing and capitalist states. If you are Charles Tilly and Michael Mann, states historically have been war making machines. And they essentially incorporate other social groups, because they need them for more effective war making, and in particular, for more effective financing of the wars. Initially, the British state needed the merchants and then, with conscription and mass armies, you needed the local population. The state makes concessions that then takes on a life of its own. That’s the problem our socialists have: how do they do that?

And ultimately, the Austromarxists were not successful in that because they were Marxist radicals in theory, but quite skillful reformists on weekdays. There was a big unresolved tension between them. Keynesianism would have offered a quite specific entry point there. It would also have allowed socialists to develop a more meaningful theory and narrative of finance and financial crisis. Because, as I said, for Hilferding, and essentially for a lot of the other Marxist literature, finance is something that comes on top of those class conflicts and exploitation, and then complicates things. But whatever you do, finance can’t fix the basic problems. Now, from a Keynesian perspective, it’s not clear why finance is less fundamental. I mean, that doesn’t take away that you can’t regard class conflict as being very important, but finance is very much built in there. And in Marx’s M-C-M’, the circulation of commodities, of course, money is also important. So, if you think of people like Jim Crotty, there are attempts to build Marx further in the direction where finance and money have a quite fundamental role, but it would have allowed the socialists to appreciate more how important that financial crisis is, and that once you have a full blown financial crisis, that’s not something that’s going to go away quickly.

Once you have a debt overhang, once you have a lot of bankrupt firms, that’s gonna leave long lasting scars on your economy. In that sense, you need entry points. Of course, analyzing and discussing finance, coming up with specific proposals for financial reforms, takes a lot of energy, because it comes with its own language. You have to understand things that are complicated. I mean, think of the only financial instruments that we discussed in 2008. Now, these are things that are quite remote from a lot of people’s lives. It requires some effort. But the effort, to some extent, also comes with new instruments and new areas of maneuver if you realize that there’s something you can do in that area. You can use the central bank to either finance governments or to finance development banks that then have a specific agenda, say, decarbonizing the economy. So, in other words, it requires quite a bit of effort, but it increases the state of your economic weaponry to some extent. So in that sense, I think it’s very important that the socialists engage with it.

Scott Ferguson: So you’ve walked yourself into our last question, which is, and I’m sure there’s not one simple, straightforward answer to this. We have to think about various contexts, whether we are talking about Europe, we are talking about the United States, or we are talking about the global south. But that said, what for you are some of the deep lessons of this story for a contemporary left moving forward?

Engelbert Stockhammer: I guess the short version is that socialists have to take finance seriously, because it’s not just a minor complication. It’s a big part of the capitalist system. So any systematic strategy of socialist transformation needs to think about what you do with corporations, how you structure the workplace, economic democracy, whatever you want to talk about there. But it also needs to think about the financial sector, because this is where a big part of the mess is coming from. Circumstances, of course, are quite different now. Not only is finance very different, but also Keynesianism has a very different state than in 1930. So let me start with Keynesianism. In 1930, initially, no one was doing Keynesianism. I mean, it was sort of a revolutionary mindset for all sorts of people. Even Keynes struggled to convince the Treasury, where he had a quite prominent role, to go in that direction. And when Roosevelt did it, it was trial and error. Until very late, Roosevelt talked about balancing the budget. Thankfully, he wasn’t doing it. His policy was different, but the theory–sounds quite horrible sometimes what he’s saying there. Roosevelt compensated for it by activism. He just wanted to do something in a way like Woytinsky. And because he was so much an activist, he didn’t care that much about the balance sheet ultimately. But it was quite late that the Roosevelt administration actually rhetorically endorsed budget deficits. So at that time that was all very new.

And in that sense, there were some Social Democrats. When you go to Sweden, Woytinsky, or to Kalecki, there were some socialists that were there. We’re talking about Keynesianism, and afterwards, it is deliberately fully incorporated. Nowadays, it’s very different. I mean, Keynesianism is much more regarded as a toolbox, and as we’ve seen, is sort of in a piecemeal way appropriated by all sorts of different political directions. And as much as we can have a socialist Keynesianism, you can have Keynesianism of the financial elite. To some extent, not the full extent, I should say, but to some extent, we’ve seen that after 2008. If you read Keynes, there is not a single road, I think, on bailing out banks. The focus is on fiscal policy to stabilize employment. Along the way, if it’s useful, you can do something with the banks. It’s probably not useful if they go under. But that’s not the focus. But in 2008, it was a very big part of the focus. Now, to be fair, there was also quite a bit of Keynesianism there. I mean, in the sense of employment, but not all the way and certainly there was not any sustained commitment to full employment.

Scott Ferguson: Full Employment of the banks.

Engelbert Stockhammer: Yeah, but in that sense, they don’t care about employment. They care about balance sheets…

Scott Ferguson: No, I know, I was making a joke. They wanted to make sure the bankers were fully employed.

Engelbert Stockhammer: In that sense, it’s clear that you can do lots of different things. It’s a lot less revolutionary. But there’s a certain legacy on the radical left to downgrade Keynesianism as reformism. My point is, yeah, sure, this would be reformism, but there’s all sorts of different types of reformism. Of course, the role of finance has also changed quite a bit. The gold standard doesn’t have the same role. It’s not a reference point. But I guess there’s two or three areas where it becomes immediately important. One is the whole role of the central bank now. And one of the things where we’ve seen it is in the Euro crisis. The Euro crisis was the echo of the global financial crisis. But different from the global financial crisis, it was mostly played out, not on private debt, but on public debt. So it was the Euro area member states, or the southern periphery, that got into trouble. And they got into trouble, to a large extent, because the ECB did not say, okay, you are member states of the Euro area, thus, in the case of need, I will support my governments, which is what the Federal Reserve has done in the US, what the Bank of England did in Britain, and what the Bank of Japan did in Japan. The Euro area, for a long time, did not say that. Quite on the contrary. They said to Greece in the run up and when things were escalating, you really have to balance your budget, which of course, is a signal to the financial market, they’re gonna let it drop the value of Greek sovereign debt further. Therefore, let’s speculate against it.

With Draghi, his famous words were that the ECB will do everything it takes to maintain the Euro. They had the Outright Monetary Transactions facility, which they actually never used because the words were enough. Because financial markets knew from the US and Britain that if the central bank wants it, it can have it. And then the government spreads declined and things were relatively stable. And then, during the COVID crisis, the ECB essentially preemptively set up these funds to make clear that they will not want a replay of the Euro crisis. And related to that is the question of should the central bank fund governments? Should they fund it directly? Should we use monetary expansion to finance public programs? And the answer to this is that it depends on circumstances. Of course you can, there’s nothing wrong with it. That’s how we fix whatever fixing we did with the global financial crisis. And that is, again, what happened during COVID. Once the government does substantial expansion because of their social needs, whether that’s because of the crisis or because of a pandemic, of course, you can do it and it does not cause inflation or any other horrible things.

Now, that said, there is a bit of a delicate thing if you open those floodgates, because then essentially, every politician could potentially take the central bank for whatever interests they have, which often would not be progressive. So it is clearly delicate. But economically, it depends on how big the social problems are, how big unemployment is, and whether that works or doesn’t work. So if you think of decarbonizing the economy, we need a massive investment program beyond the scale of what we’re currently making. If we want to meet climate targets, of course, you should use central bank funding. In a way, it’s a no brainer. I mean, if there are massive needs, you can do it unless you’re at full employment, which is very clearly a point where it would crowd out other activities. But if we are reaching full employment, and we are not on track of the decarbonisation of the economy, you have to shift employment. So even under these circumstances, I would support it. If inflation is the price of shifting away from fossil fuels, then so be it. Okay, that was the point about central banks and that is probably most important. I could also talk about changes in the financial sector, but I think in the interest of time, I will not do that. But trust that this was interesting enough,

William Saas: We would probably love to talk to you for a few more hours. This has been amazing. I wonder if you could close us out with maybe a word to our comrades, the Marxist folks who may remain resistant to the idea that these ideas and insights that Woytinsky and you talk about, in terms of the positive role of the state, potentially work. I think part of the ongoing skepticism, and you acknowledge this as part of the constraint at the time when Woytinsky and Hilferding were operative, was the political constraints. And to represent the Marxist position in a way that I think is as full and fair as it can be, it’s informed by a profound skepticism of the sort of ability or willingness of the political class elites and capitalists to go along with it. And then, in fact, that public employment programs along the lines that we’re talking about here, and that Woytinsky was advocating for, some people may have seen that clearly, or may see that clearly today, as something that could result in something more socialist and oppose it on those grounds, articulated or not. For our Marxist friends, a note of hope and, I don’t know, optimism. If you could leave us on that note, that would be excellent.

Engelbert Stockhammer: I guess the entry point there is Kalecki’s famous 1943 paper, “The Political Aspects of Full Employment,” where he’s essentially making the argument that if you want, you can create full employment. In that sense, he’s fully learned the Keynesian lesson. And he says, technically, it’s not a problem. We know how to do it. The constraints ultimately are political. Politically, the ruling classes will not want sustained full employment, essentially, because it shifts the bargaining power too much to workers. And there’s certainly some truth to that argument. And to some extent, you may argue that was hidden in the course of the long boom of Fordism where some sections of capitalists got increasingly skeptical. I would still even argue the other. Actually, it wasn’t so much industry. It was finance that wanted to move away from Fordism and Keynesianism. The big companies, in particular, the ones going from mass consumption, actually weren’t that hostile initially, but could also live with neoliberalism. That’s a digression. The important point is Kalecki infers from that, once you’ve reached full employment, you need further institutional change. And I think that’s the crucial point: what is the change that we need? For a lot of Marxist comrades, they come with the Kalecki paper as an end of the debate. They come and say, we already told you the capitalists aren’t gonna like it. That’s why it’s not gonna happen.

William Saas: 100%.

Scott Ferguson: So let’s give up.

Engelbert Stockhammer: If that’s what they say, then they have to own up to what Hilferding said. Then, you have to let the crisis play out. Otherwise, you need a rather, I’m tempted to say, almost naive picture of the revolution that you could clear the table from all the institutions that we have here. When we do a revolution–maybe I should say if–we will have to work with the institutions that we have to some extent. Some of them will be fully replaced, but a lot of them will not. Yeah, we have to. So in a way, in my view, the circumstances for revolution are based in a situation that you hit in the late 60s and early 70s, with relatively full employment and strong labor movements. It’s there where you need further institutional change embedded in society that will require changes in the workplace, economic democracy, and what have you. But it will also involve a lot of changes in the financial sector. It obviously will also require changes in state structures. But that is where we have to get. Because if you think that you can really change the power balance and take state power away from capitalists, you can also do that within these structures that will anyways not magically disappear. Even with neoliberalism after 30 years there are bigger states than before. With the revolution, that will not go away. We will be left with massive state structures. And socialists, a strategy on how to deal with it is not say, “Oh, it’s capitalist, we’re not going to deal with it.”

William Saas: Engelbert Stockhammer, thank you so much for joining us on Money on the Left.

Engelbert Stockhammer: Great, that was fun!

* Thanks to the Money on the Left production teamWilliam Saas (audio editor), Richard Farrell (transcription), & Meghan Saas (graphic art)