Bagehot’s 1873 book, Lombard Street: A Description of the Money Market, is an application of Bagehot’s theories of sovereignty described in The English Constitution. Bagehot embraced a political — and thus economic — system that assumed a political (and thereby financial) elite as a given and a positive good, as a necessity, in fact, if society is to advance socially, economically, and politically.
Less than half a century later Keynes took Bagehot’s assertions as proven fact. He based his entire economic theory on the assumption of the absolute necessity for existing accumulations of savings to finance capital formation.
The belief, of course, is that human labor is really responsible for all production. Technology at best only enhances human labor. The problem is that as technology becomes more expensive, only those who can afford to cut consumption can own, because they are the only ones who can save. It makes sense, therefore, that the economic elite and the political elite should be the same people, at least to Bagehot, and to Keynes after him.
|Babbage's "Analytical Engine"|
In reality, while technology makes for an independent (though not necessarily autonomous) addition to the mere animal power of humanity, it does not change a human being’s physical capabilities. This causes a problem when technology begins to take over the bulk of the manual input to production, replacing human toil. As Charles Babbage, inventor of what is often considered the first computer, the "analytical engine," pointed out in his essay, On the Economy of Machinery and Manufactures (1835), explaining that there are things that add to, but do not change human power:
“(4.) The advantages which are derived from machinery and manufactures seem to arise principally from three sources: The addition which they make to human power. — The economy they produce of human time. — The conversion of substances apparently common and worthless into valuable products.
“(5.) Of additions to human power. With respect to the first of these causes, the forces derived from wind, from water, and from steam, present themselves to the mind of every one; these are, in fact, additions to human power, and will be considered in a future page: there are, however, other sources of its increase, by which the animal force of the individual is itself made to act with far greater than its unassisted power; and to these we shall at present confine our observations.” (Charles Babbage, On the Economy of Machinery and Manufactures. London: Charles Knight, 1835, 6.)
Bagehot, and Keynes after him, therefore regarded economic and political control of society by an elite as the proper ordering of society. Like Keynes, Bagehot (and Wilson after him) rejected the substance of democracy, while calling his system democratic. The only real issue was whether the elite that controlled the economy should be an unaccountable private elite, as Bagehot supposed, or a marginally accountable public elite, as Keynes proposed. This, of course, depended on who controlled money and credit, and thus both political and economic power.