People often think of economics as “the dismal science.” In the opinion of some authorities, this is due to the discredited theories of the Reverend Thomas Malthus that, nevertheless, became entrenched as economic orthodoxy. This was primarily because Malthus told the wealthy and powerful — and those who depended on them — precisely what they wanted to hear.
This fitted in very nicely to the growing insistence in the late 18th and early 19th centuries that the only source of financing for new capital formation is past savings . . . by definition a monopoly of the already-wealthy. It also found support in a body of thought that a number of political scientists had already discredited, but which many people still supported on the basis of faith instead of reason.
That is, an elite both governed the country and controlled the economy by divine right. This sort of thinking was epitomized in the political economy of Walter Bagehot, a primary influence on John Maynard Keynes whose economic theories have wrecked the world. The inevitable conclusion is that economics has been unfairly stigmatized as “the dismal science” when its depressing nature results from bad ideas about where sovereignty lies: in the State, or in actual flesh and blood people.
Bagehot’s The English Constitution (1867) and Lombard Street (1873) detail a political and economic theory that depends absolutely on the maintenance of a small and extremely powerful elite — a chosen people (emphasis Bagehot’s) — who control both the financial system and the machinery of government with their wealth.
Bagehot called this “democracy,” because it was government “for” the people. The “of” and “by” must be ignored because, as demonstrated by their lack of wealth and power, common people are clearly unable to take care of themselves. The private sector financial elite had to assume responsibility to run people’s lives for them.
Keynes’s contribution to this theory (and which was adopted by Adolph Berle and other architects of the New Deal) was to declare that you could not trust the private elite to run other people’s lives in an acceptable manner. Only the State could do so.
Keynes ignored the fact that, if the State gains that much power, it generally gets taken over by the private sector financial elite, just as Bagehot claimed in The English Constitution. As Benjamin Watkins Leigh noted, “Power and Property can be separated for a time by force or fraud — but divorced, never. For as soon as the pang of separation is felt . . . Property will purchase Power, or Power will take over Property.”
Therein we see the problem for a presumably democratic society. A nation cannot survive being half free and half slave — and that is as true of economic slavery as it is of chattel slavery. Imposing a “divine right of capital” on a presumably free society is as wrong as imposing the divine right of kings.