In yesterday's posting we said that reliance on past savings as the only source for financing new capital formation traps an economy — civilization itself, in fact — into a downward spiral and a never-ending cycle of crash-and-burn, slow recovery, then another crash-and-burn. The neo-distributist tells us this is because we're not thinking in "human scale." If we built civilization on a smaller scale, one more in keeping with the human spirit, things would be much better and sustainable. "Small," they tell us, "is beautiful," and the only way to ensure the survival of the species.
Is that, in fact, the case? Or are subsistence economies dependent on past savings locked more firmly into a downward spiral than advanced economies? We contend that, however bad things are today in the advanced countries of the world, it is far worse in those in which "small is beautiful" is not a romantic ideal, but a brutal fact of life, where subsistence agriculture and artisan craft small business is the rule. Absent rigid State control and continuous inputs of financial capital from the outside the local economy, those who control past savings are in charge, and oppress the poor far worse than any modern industrial economy would dare through the imposition of debt and other forms of "legal" slavery.
It is no accident that successful micro-lending operations in subsistence economies without exception get their seed money from outside the local area, and can only be maintained with regular infusions of cash from charitable donors, again from outside the local economy. The local economy simply cannot produce enough surplus to maintain the current level of development, feed and clothe people adequately, and provide for new capital investment even on a "human scale" to raise living standards. Past savings — reductions in consumption — cannot do the job when what is called for is increases in production.
Small may be beautiful, but another word for it is stagnation and decay, as either current consumption or future capital formation necessarily suffers. This is inevitably the case in any economy at any level of development that relies on existing accumulations of savings to finance new capital formation. We see it today in the accelerating decay of the global economy trapped in a downward spiral by Keynesian assumptions.