Hyper-rich Conservatives loathe John Maynard Keynes, and with good cause. His prescriptions for the economy run counter to their Galtian dreams of world domination with themselves in the Howard Roark/John Galt roles. If any of them ever read Chapter 24 of Keynes’ book, The General theory of Employment, Interest and Money, they would realize that Keynes despised them right back. He thought they were a bunch of useless sacks of money with little purpose and less value, a group whose success arises from chance and the false economic theories they support.
Keynes explains that the major mistake people make about economics is the idea that capital is scarce, and must be rewarded heavily to encourage investment in job-creating projects. Keynesian theory says that this view is utterly wrong. Keynes says that the amount of capital needed to operate an economy at full employment is limited, and once achieved, the marginal return to capital will drop to the point that it merely covers depreciation, obsolescence, and a small return for risk and for managerial skill and judgment.
Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital.
Savor that thought for a minute.
Chapter 24 begins with the statement that the twin problems of capitalism are “… its failure to provide for full employment, and its arbitrary and inequitable distribution of wealth and incomes.” The hyper-rich conservatives who dominate our political/economic lives regard those as features, not bugs, and have spent their money to make sure that workers and voters don’t understand that these are real and fixable problems. Practically all economists have lost any sense that Keynes is right, and instead teach us that we have to have a pool of unemployed to make sure that wage demands don’t push up inflation. See, e.g. Mulligan, Casey.
Keynes wrote in 1935. He says that in his time the average citizen was certain that the estate tax, which he calls “death duties”, was a bad thing because it removed scarce capital from the economy. Nonsense, says Keynes. When the government spends money, including the money generated by the estate tax, it increases the propensity of the average person to consume, which creates the incentive to save and invest in a virtuous cycle.
Thus our argument leads towards the conclusion that in contemporary conditions the growth of wealth, so far from being dependant on the abstinence of the rich, as is commonly supposed, is more likely to be impeded by it.
Our contemporary conditions are a good test of his theory. There is a massive concentration of wealth in the hands of a very few. There are trillions of dollars floating around uselessly in overseas bank accounts of the rich, their corporations, corrupt politicians from around the world, drug cartels and other scum. The hyper-rich do not spend much of their money on consumption. Instead they use it to generate political power. Then they use that power to increase the returns on their capital by insisting on monopoly control, lower taxes, less regulation and the ability to crush the demands of labor with an enormous pool of increasingly desperate unemployed. This works to the benefit of the corrupt politicians and drug sellers, the free riders on the sleazy rich.
Keynes is right that the estate tax is a test of the ability of average voters to understand the economy. As he says, while there is some justification for inequality in wealth from work and production, that doesn’t apply to inequality in inheritance. See, e.g., the creepy Walton heirs. Every effort bent to support this ignorance is vigorously supported by the hyper-rich and their willing tools in economics and politics.
Chapter 24 is sketchy. It doesn’t offer a pathway to change or make specific predictions of how much capital a society needs. It doesn’t explain exactly how this would happen, or what would have to change in the minds of voters to make it possible. The permanent campaign to discredit Keynes has all but erased the memory of his memorable phrase, The Euthanasia of the Rentier.
One group that might recall this felicitous phrase is the Modern Money Theorists. L. Randall Wray’s excellent work Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems sets out in Chapter 7 a sensible program to create full employment, and provides a detailed refutation of the stupid idea that full employment leads to inflation. Wray doesn’t talk about inequitable wealth distribution, but I’m pretty sure his plan would also lead to the Euthanasia of the Rentier.
The Progressive Caucus in Congress does not understand these ideas either. As Gaius Publius points out at AmericaBlog, they are all neoliberal Rubinites. All of their proposals are premised on failed economic theories, and spend way too much time bowing in the direction of the great American Capitalist. I think Euthanasia of the Rentier would make a marvelous slogan for a progressive economic caucus.
Photo from the IMF in the public domain