Yesterday we
looked at what Keynes really meant when he advocated “the euthanasia of the
rentier.” Today we want to look at why
he would say something so obviously heartless and insensitive.
Keynes’s argument
that you need excess production that is not consumed (and yet must be) in order
to finance new capital formation leads to the problem of what, specifically, to
do with the excess production, which must be turned into cash to generate the
savings before it can be used to finance new capital formation.
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| "Consumption is the sole end and purpose of all production." |
Keynes solved
this problem by advocating that government issue all money backed by its own
debt, thereby regulating demand to control the economy to ensure stability. This gave a non-producer total power over the
ability to consume, thereby undermining Adam Smith’s first principle of
economics, as well as promoting unnecessary consumption. As Pope Pius XI characterized the sort of
system Keynes advocated,
In the first place,
it is obvious that not only is wealth concentrated in our times but an immense
power and despotic economic dictatorship is consolidated in the hands of a few,
who often are not owners but only the trustees and managing directors of
invested funds which they administer according to their own arbitrary will and
pleasure.
This dictatorship is
being most forcibly exercised by those who, since they hold the money and
completely control it, control credit also and rule the lending of money. Hence
they regulate the flow, so to speak, of the life-blood whereby the entire
economic system lives, and have so firmly in their grasp the soul, as it were,
of economic life that no one can breathe against their will. (Quadragesimo
Anno, §§ 105-106.)
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| "Concentrated power over money is bad." |
Keynes resolved the
key power issue of control over money and credit by an élite (whether public or private) by ignoring it.
This, then, is
the context within which we must understand Keynes’s remarks about “rentiers,”
that is, small investors who use the income from capital for consumption
instead of reinvesting it.
So, did Keynes
advocate actual murder of small investors?
No. His program, however, is a
virtual blueprint for what Hilaire Belloc termed “the Servile State,” in which
capitalism and socialism merge, and everyone is utterly dependent on a wage
system job for income. People could
still save out of their wage income, but would not be able to invest it: “A man
would still be free to accumulate his earned income with a view to spending it
at a later date. But his accumulation
would not grow.” (Ibid., IV.16.iv.)
Keynes’s system
thereby undermines the sovereignty of the human person and the integrity of the
family as the basic unit of society. It
is contrary to the whole idea of that thrift and common sense at the heart of
the domestic economy of the household (Volkswirtschaft)
that is the ultimate justification for a national economy in the first
place. As Pope Leo XIII pointed out in
1891 in his landmark encyclical, Rerum
Novarum (and understanding “land” as an example of an investment, not as a
restriction or limitation),
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| "Widely dispersed power is good." |
It is surely undeniable that,
when a man engages in remunerative labor, the impelling reason and motive of
his work is to obtain property, and thereafter to hold it as his very own. If
one man hires out to another his strength or skill, he does so for the purpose
of receiving in return what is necessary for the satisfaction of his needs; he
therefore expressly intends to acquire a right full and real, not only to the
remuneration, but also to the disposal of such remuneration, just as he
pleases. Thus, if he lives sparingly, saves money, and, for greater security,
invests his savings in land, the land, in such case, is only his wages under
another form; and, consequently, a working man's little estate thus purchased
should be as completely at his full disposal as are the wages he receives for
his labor. But it is precisely in such power of disposal that ownership
obtains, whether the property consist of land or chattels. (Rerum Novarum, § 5.)
Kelso resolved
the whole issue of the presumed necessity of concentrated ownership of capital
— and thereby refuted the presumed necessity of “the euthanasia of the rentier”
— by explaining that past savings (defined as the excess of production over
consumption) are not the sole source of financing for new capital
formation. In fact, as Dr. Harold G.
Moulton of the Brookings Institution pointed out in his classic refutation of
the Keynesian New Deal, The Formation of
Capital (1935) — there is evidence suggesting that Keynes was attempting to
counter Moulton with his General Theory
in 1936 — past savings are actually the worst source of financing for new
capital formation.
Savings as
defined by Keynes are unconsumed production.
Having the government issue debt by emitting bills of credit to clear
that production when the capacity to do so already exists in the economy is the
surest way to undermine the very stability of the economy that Keynes sought to
reestablish.
A better source
of financing for new capital formation is (as Moulton explained) to turn the
future stream of income into money now by issuing private sector bills of
exchange, form the capital, and repay the financing out of future profits —
future savings instead of past savings.
In this way not only can production and consumption be brought back into
equilibrium and the non-seasonal business cycle of boom and bust eliminated
(Moulton), but ordinary people without past savings or sufficient income to
permit savings can purchase the advancing technology that is lowering the value
of their labor and displacing them from their wage system jobs (Kelso).
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