According to an article in the December 27, 2019 Washington Post, in the middle of a presumably booming economy, Americans are drowning in non-mortgage consumer debt. (“Americans Piling Up Near-Record Levels of Credit Card Debt,” A-3.) Unacknowledged in the story — or anywhere else — is the depressing (and sobering) fact that Keynesian economics and all derivatives, absolutely rely on non-productive spending for consumption, what Jean-Baptiste Say called “multiplying barren consumptions.”
|John Maynard Lord Keynes|
Consumer debt, access to which pretty much controls the non-government sector of today’s economy in most countries, is the epitome of Keynesian economics, the driving force that keeps everything going if government isn’t spending enough. This is because of the emphasis John Maynard Keynes put on “stimulating demand” only through government spending or wage system jobs, a belief derived from the idea that labor alone creates all wealth . . . which logical raises the question that if labor alone is solely responsible for all the wealth that is created, why does anybody need things like land, technology, and resources? Just apply labor to nothing and — taking the statement that labor alone creates all wealth at face value — wealth will pop into existence.
Unfortunately, it doesn’t work that way, even in fairy tales. Did you ever notice, for example, that there always seems to be a price paid for the use of magic in fairy tales? Or the magic-user ends up in an oven or tossed over a cliff or something? No, the only way to run an economy is not to “stimulate demand” by creating fake claims on existing production as Keynes insisted must be done, but by creating demand naturally by making people productive.
|Sorry, Milord, not even in a fractured fairy tale.|
This is because Keynes thought that production was not a problem as technology had advanced to such a level that it could produce all that was needed for both consumption and reinvestment. Of course, he then contradicted himself by maintaining that only labor is productive, but then consistency does not appear to have been his lordship’s long suit.
You see, in his “analysis” of Say’s Law of Markets (briefly and misleadingly stated as “production equals income, therefore supply generates its own demand, and demand its own supply”), Keynes assumed that only labor is productive, and then claimed Say’s Law — which takes into account production by land and technology as well as by labor — is invalid in an industrialized economy! As he concluded, misstating Say’s Law, “Thus, Say’s law, that the aggregate demand price of output as a whole is equal to its aggregate supply price for all volumes of output, is equivalent to the proposition that there is no obstacle to full employment.” (General Theory of Employment, Interest and Money, I.3.i.)
Implicit in Keynes’s statement of Say’s Law is the assumption that only labor produces anything . . . and yet at the same time, the concept of “full employment” also implicitly assumes that people are employed by owners of technology that is essential to production! So which is it? Labor or technology? Or both?
To answer that, we need to look at what Jean-Baptiste Say really said when he responded to the Reverend Thomas Malthus on a similar point:
All those who, since Adam Smith, have turned their attention to Political Economy, agree that in reality we do not buy articles of consumption with money, the circulating medium with which we pay for them. We must in the first instance have bought this money itself by the sale of our produce.
To a proprietor of a mine, the silver money is a produce with which he buys what he has occasion for. To all those through whose hands this silver afterwards passes, it is only the price of the produce which they themselves have raised by means of their property in land, their capitals, or their industry. In selling them they in the first place exchange them for money, and afterwards they exchange the money for articles of consumption. It is therefore really and absolutely with their produce that they make their purchases: therefore it is impossible for them to purchase any articles whatever, to a greater amount than those they have produced, either by themselves or through the means of their capital or their land.
From these premises I have drawn a conclusion which appears to me evident, but the consequences of which appear to have alarmed you. I had said — As no one can purchase the produce of another except with his own produce, as the amount for which we can buy is equal to that which we can produce, the more we can produce the more we can purchase. From whence proceeds this other conclusion, which you refuse to admit — That if certain commodities do not sell, it is because others are not produced, and that it is the raising produce alone which opens a market for the sale of produce. (Jean-Baptiste Say, Letters to Mr. Malthus, 1821, Letter I)
Comparing Keynes’s misstatement of Say’s Law with what Say actually said, and noting Keynes’s emphasis on stimulating consumption by any means, we realize that Keynes’s prescription for achieving full employment was not only completely off-base, but that “full employment” isn’t even a viable economic concept!
What is the solution to “stimulating demand”? Making people productive by any legitimate means, not creating fake jobs to stimulate consumption artificially. And that is why making it easy for Americans — or anyone else — to get consumer credit and virtually impossible to get capital credit only makes a bad situation worse. What is needed is an intensive program of expanded capital ownership such as Capital Homesteading that has the potential to make everyone an owner of capital as well as labor so that he or she can produce and therefore consume. We need “full production” and “full consumption,” not “full employment.”