Are We in “Late Stage Keynesianism” Rather Than “Late Stage Capitalism”?

Today’s economic challenges—from record-high national debt to inflation and market instability—are frequently blamed upon “late-stage capitalism.” But is this truly a failure of capitalism? Or are we seeing the effects of another economic model entirely? 

Many of these struggles can, in fact, be understood as symptoms of “late-stage Keynesianism” – a system reliant upon government intervention, fiat currency, and the concept that artificial spending can drive prosperity. In putting the stages of capitalism as outlined by Karl Marx into perspective, these issues will clearly be products of Keynesian policy and not true free-market capitalism. 

The Stages of Capitalism According to Marx

Karl Marx theorized that capitalism would necessarily pass through several stages that would progressively worsen in the exploitation of labor and resources into inevitable demise. According to him, the stages are as follows:

• Primitive Accumulation: The initial accumulation of wealth through conquest or exploitation.
• Manufacturing Capitalism: Factory production where workers are brought together and exploited by centralized control.
• Industrial Capitalism: Mass output through automation and technological consolidation where there is a concentration of wealth.
• Financial Capitalism: Concentration of wealth from financial markets, not from productive industry.
• Late-Stage Capitalism: Dominated by monopolies, multinational corporations, and sharp inequality. In Marxist theory, it represents the pre-collapse stage of capitalism .

While Marx believed these stages represented capitalism’s natural progression, many of the dynamics he described were actually driven by Keynesian policies and state intervention – not by free market forces. We will see below how each stage represents Keynesianism, rather than capitalism.

Primitive Accumulation: Stimulated by Fiat Currency and Credit Expansion

The concentration of wealth in a few hands to create a foothold for capitalism was the idea of primitive accumulation developed by Marx . Fiat currency today, such as the Federal Reserve Note, allows for a modern form of this: “primitive accumulation.” 

Theoretically created out of thin air and without physical backing, fiat currency allows a government to artificially extend credit and print money at will. Most often, central banks and financial institutions benefit unduly since inflation erodes the purchasing power of savers and the general public.

In a genuine free-market economy using sound money, such as gold and silver , one cannot become wealthy simply by printing money. Fiat money allows governments and financial elites to create wealth that a genuine free-market system would never allow. This constitutes primitive accumulation made possible by Keynesian policy.

Manufacturing Capitalism: Tied to Government Intervention into Labor Markets

Marx described manufacturing capitalism as that period when capitalists organized labor under centralized control and were thereby able to systematically exploit labor. 

Today, Keynesian policies encourage this same centralization through intervention in the following areas:

• Subsidies and Tax Breaks: Large corporations benefit from subsidies and tax breaks which put smaller competitors at a disadvantage. These policies enable corporations to grow and centralize labor on a scale which would be impossible in the competitive market.
• Labor Legislation: Legislation such as minimum wage and other stringent labor laws, enacted to protect employees, have actually worked against small businesses by creating an obstacle. Large companies are able to absorb the regulatory economies so much better, and accordingly can centralize more control over labor and production.

These interventions of regulating the labor market favor the same kind of centralization described by Marx but in this process, which is induced by the Keynesian policies and not by the dynamics of the free market.

This is industrial capitalism impelled by debt-fueled growth and state-led infrastructure. According to Marx, industrial capitalism is portrayed by rapid technological change and mass production. The stage is amplified through Keynesian policies, therefore enhancing growth by way of debt-financed infrastructure projects, public works, and subsidies.

• The Fiat Monetary Expansion and Debt: The Keynesian model is based on fiat currency and low interest rates, which permit corporations to grow beyond their levels of sustainability. This nominal economic growth through debt gives rise to inflated industries due to an acquired dependence upon debt, thus creating economic bubbles and subsequent corrections.
• State-Led Infrastructure: Commonly, states heavily invest in infrastructural projects serving particular industries. Indeed, this may give rise to growth, but such policies also squeeze out productive investments, as decided by the market, and crowd in resources into state-chosen investments.

Under Keynesian policies, industrial capitalism is converted into an indebtedness and intervention system, rather than a proper, free-market-like development of productive transformation.

Financial Capitalism: Posited by Central Banks and Monetary Manipulation

Marx regarded financial capitalism as that stage when wealth moved from the sphere of production into the realm of speculation. How well central banks and unbacked fiat currency facilitate this speculative growth in today’s Keynesian system is well noted.

• Central Bank Policies: Central banks are perfectly manipulating interest rates to incite people to borrow and invest in a continuous speculative behavior. Cheap credit fuels the asset bubbles that benefit financial markets rather than the producing sectors.
• Quantitative Easing and Asset Inflation: The Keynesian policy of quantitative easing over-floods financial markets with liquidity, inflating the stock prices and values of real estate without giving them any additional real value. It is in this inflationary environment that asset holders are the main beneficiaries, a factor that increases wealth inequality and destabilizes the economy.

The phenomena of concentrated wealth and speculative activity that one sees in financial capitalism derive from central bank intervention and not from natural market dynamics. Such distortions, consequently, are Keynesian intervention and not free-market capitalism.

Monopolies: Coercive versus Voluntary Monopolies

One of the biggest criticisms of capitalism, especially in its “late stage,” is the presence of monopolies. However, not all monopolies are inherently destructive , nor do they all come from the manipulation of markets. As a matter of fact, there are two kinds of monopolies: coercive and voluntary.

Voluntary monopolies are those that emerge organically through the free market because a business or individual has merely offered a uniquely valued good or service, with no immediate competition. A monopoly can be developed through greater efficiency, inventiveness, or pleasing of the customer, thus serving customers by a high bar set without the derogation of competition. In such instances, a naturally occurring, voluntary monopoly might well function justly, equitably, and efficiently and representative of healthy competition.

Coercive monopolies , however, arise from government intervention and favoritism. Coercive monopolies cannot sustain themselves absent special privileges for themselves in the form of subsidies, bailouts, or regulations impeding entry, for example. Coercive monopolies survive on special favors from government rather than on market merit and therefore fetter consumer choice and are inefficient.

A coercive monopoly can’t exist under true free markets, due to little-to-no government intervention that precludes the suppression of competition, perpetuation of artificial barriers, or an obvious exertion of market muscle. Truly free markets allow businesses to rise and fall of their own accord, leaving only voluntary monopolies – that is, those that exist because of genuine market value.

Keynesianism-Enabled Monopolies

Most of today’s monopolies are coercive and not voluntary, sustained through a policy framework that caters to large corporations at the expense of smaller rivals. Bailouts, industry-specific subsidies, and regulations all tend to favor established businesses at the expense of competitors, giving rise to monopolistic structures that Marx associated with the final stages of capitalism. Yet these monopolies are facilitated by interventionist Keynesian policies rather than market forces.

But in distinguishing how coercive versus voluntary monopolies differ, it becomes understood that many of these monopolies decried as “capitalist excesses” are the result of cronyism and government support. In any case, a truly free-market economy would cultivate voluntary monopolies through efficiency and value, not coercive ones reliant on intervention.

Late-Stage Keynesianism: The Unsustainable Debt Spiral

Late-stage Keynesianism consists of an unproductive reliance upon debt to achieve “growth.” In other words, there is gross overborrowing of governments in order to finance their spending, while the manipulation of the economic cycles is done through the use of fiat currency and low interest rates. This kind of dependence on debt is unnatural for capitalism but invented by Keynesian policy, which focuses only on the short-run aggregate demand at the expense of the economy’s long-term well-being.

• Debt Dependency: The habit of overborrowing by governments leads to a crowding-out effect with productive investment, leaving less for basic services, infrastructures, or real economic development. Their economies will be fragile, crisis-prone, and dependent on continuous intervention.
• Inflation and Currency Devaluation: Fiat currency lets central banks devalue money through inflation, which especially erodes the purchasing power of those who do not have assets to put their wealth into. It benefits financial markets but works to the detriment of wage earners, increasing the gap in wealth, leading to further instability.

These issues are in tune with Marx’s late-stage capitalism, but they are a product of the Keynesian intervention – not an outcome of the failure of the free market or an unhampered market (“unfettered market”).

The Broken Window Fallacy: Keynesianism’s Costly Illusion

The Keynesian policy represents the “broken window fallacy” of Frédéric Bastiat , an explanation of the unseen cost regarding spending on unproductive projects. Most of the time, Keynesianism considers government spending to be intrinsically helpful in and of itself, whatever its purpose may be. Yet, if what Bastiat said is to be considered, such previous kinds of thinking have given a blind eye to the opportunity cost of resources.

For example, government spending on temporary jobs or other “stimulus” activity only creates an illusion of prosperity. Society is being deprived of wealth, as in the case of the shopkeeper who has to take resources away to pay for the repair of the broken window. A free market economy with good money would invest resources in a way that satisfies real demand, and would reward investment which generates actual wealth, not perpetuating the boom illusion with repeated busts.

Reexamining the Narrative: Are We Really in Late-Stage Capitalism?

We may find it interesting to note that Marx’s stages of capitalism pertain to today’s scenario. What we are beholding is not a natural decline of free-market capitalism. If anything, the economic instability we face these days may be a reflection of “late-stage Keynesianism” – a model increasingly dependent on government intervention, debt, and fiat currency.

Keynesian policies do indeed predispose one towards a system of concentrated wealth, speculative bubbles, inequality, and unsustainability in debt cycles – all elements unlikely to form the core of a free-market economy. A properly functioning capitalistic system, one supplying sound money and limited intervention, would foster an environment which rewards savings, productive investment, and organic growth. 

Perhaps today’s economic problems are best explained as the result of long-term distortion wrought by Keynesian intervention, rather than any flaw of capitalism, per se.

If we seek to have a stable and prosperous economy, then the answer might be to reduce government intervention and return to sound money, enabling the free market to function as it should. Rather than “late-stage capitalism,” we might be experiencing the limitations of Keynesianism – a system that is reaching its limits, calling for a return to genuine free-market principles and sound money.