...Last year, when it seemed that everyone had become a Keynes expert I thought I should read his "The General Theory of Employment, Interest and Money".One of the more interesting bits is at the end of the book:
(here's an online version at Marxists.org [!])
It's a heavy slog but now it takes strangers longer to recognize my mental resemblance to Homer Simpson:
("Stupidity got us into this mess and stupidity will get us out."; "I'm not a man who's easily impressed. Hey, a blue car." etc.)....
...I feel sure that the demand for capital is strictly limited in the sense that it would not be difficult to increase the stock of capital up to a point where its marginal efficiency had fallen to a very low figure. This would not mean that the use of capital instruments would cost almost nothing, but only that the return from them would have to cover little more than their exhaustion by wastage and obsolescence together with some margin to cover risk and the exercise of skill and judgment. In short, the aggregate return from durable goods in the course of their life would, as in the case of short-lived goods, just cover their labour costs of production plus an allowance for risk and the costs of skill and supervision.
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. Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital. An intrinsic reason for such scarcity, in the sense of a genuine sacrifice which could only be called forth by the offer of a reward in the shape of interest, would not exist, in the long run, except in the event of the individual propensity to consume proving to be of such a character that net saving in conditions of full employment comes to an end before capital has become sufficiently abundant. But even so, it will still be possible for communal saving through the agency of the State to be maintained at a level which will allow the growth of capital up to the point where it ceases to be scarce.
I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work. And with the disappearance of its rentier aspect much else in it besides will suffer a sea-change. It will be, moreover, a great advantage of the order of events which I am advocating, that the euthanasia of the rentier, of the functionless investor, will be nothing sudden, merely a gradual but prolonged continuance of what we have seen recently in Great Britain, and will need no revolution.
Thus we might aim in practice (there being nothing in this which is unattainable) at an increase in the volume of capital until it ceases to be scarce, so that the functionless investor will no longer receive a bonus; and at a scheme of direct taxation which allows the intelligence and determination and executive skill of the financier, the entrepreneur et hoc genus omne (who are certainly so fond of their craft that their labour could be obtained much cheaper than at present), to be harnessed to the service of the community on reasonable terms of reward.
At the same time we must recognise that only experience can show how far the common will, embodied in the policy of the State, ought to be directed to increasing and supplementing the inducement to invest; and how far it is safe to stimulate the average propensity to consume, without foregoing our aim of depriving capital of its scarcity-value within one or two generations. It may turn out that the propensity to consume will be so easily strengthened by the effects of a falling rate of interest, that full employment can be reached with a rate of accumulation little greater than at present. In this event a scheme for the higher taxation of large incomes and inheritances might be open to the objection that it would lead to full employment with a rate of accumulation which was reduced considerably below the current level. I must not be supposed to deny the possibility, or even the probability, of this outcome....
Now, ignoring the shot at financiers, the only way I can read "the euthanasia of the rentiers" is as a reference to debt extermination over time as 0% interest rates crush passive investment and/or a flood of money printing.
That being the end, the difference between Keynes and Hoover's Treasury Secretary Andrew Mellon (as reported by Hoover):
"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people."is not as large as one might first expect.
Krugman in his intro to The General Theory doesn't seem to see it that way:
...Book VI, at the opposite end of The General Theory, really is a kind of dessert course. Keynes, the hard work of creating macroeconomics as we know it behind him, kicks up his heels and has a little fun. In particular, the final two chapters of The General Theory, though full of interesting ideas, have an impish quality. Keynes tells us that the famous victory of free trade over protectionism may have been won on false pretenses – that the mercantilists had a point. He tells us that the “euthanasia of the rentier” [376] may be imminent, because thrift no longer serves a social function. Did he really believe these things, or was he simply enjoying tweaking the noses of his colleagues? Probably some of both....while right-of-center historian and economist Michael Hudson sees the 'euthanasia' as calling for a Jubilee:
Q: The source of the present crisis is the rentier system that the last financial revolution engineered since the 1980s?But maybe Hudson and Krugman aren't so far apart. Hudson ends the interview saying:
MH: Savings have been lent out without increasing production or living standards. Much has indeed been lent out to finance gambling using junk mathematics and debt-leveraged takeovers. But the big picture is that the debt overhead has soared without corresponding means in the ability to pay this debt.BOX 1
What’s the rentier economy by Hudson
«A century ago when the classical economists, Adam Smith, John Stuart Mill, in the reform era, tried to say: look, there are some incomes that are not earned. Rent is not earned, it’s an excess price. Interest is not earned, it’s a monopoly price. Monopoly profits aren’t earned, they’re extortionate. All this was viewed (by classical economists) as something that government regulators should get rid of, either by not permitting it in price, or by holding the monopolies in the public domain, or by the land itself being either nationalized or taxed. The classical economists divided almost the entire economy into productive and unproductive labor, into wealth, and overhead, into real income and costs. This threatened the vested interests with taxing away their free lunch, so you have an anti-classical reaction that is epitomized by the Chicago school of anti-government, anti-tax people whose leader, Milton Friedman, said there’s no such thing as a free lunch. Well, classical economics was all about the free lunch. Look at Ricardian rent theory. That’s all about the free lunch. The role of modern economic theory — I should call it post-modern economic theory and statistics — is to pretend that the banks, the landlords and the monopolies actually earn their income instead of extracting it from the (productive) economy. »MH: By that, he meant a debt write-down. This is the only ultimate solution. As Adam Smith noted in 1776, no government ever has repaid its foreign debt. Today one can say the same thing about the private sector. Bankruptcy seems to be the indicated way to wipe it out. Governments are postponing this resolution by bailing out creditors – not debtors....
Q: The best solution for the financial world is to induce the euthanasia of the rentier system as Lord Keynes suggested once (Chapter 24, Concluding Notes) in his General Theory of Employment, Interest and Money (1936)?
..As Paul Krugman explained once this rentier aspect was not transitional neither its euthanasia was gradual.The link is to Krugman's Introduction!
Inspiration for this whole ramble is a seven year old Tyler Cowen post at Marginal Revolution:
Krugman’s introduction to Keynes’s General TheoryHowever, any idiocy is entirely my own.
