Home > Macro/Monetary Theory > Krugman to Keynes: Mission Accomplished

Krugman to Keynes: Mission Accomplished

For those of you who haven’t read my post about Keynes’s Marxist tendencies here is a reminder from the General Theory.

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 to-day 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 the 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.

This is Keynes opining that there is no real reason for capital to be scarce even though we have observed that it has carried a positive price at virtually all points in history.  Because of this, he is advocating that the state should take actions to make capital not scarce because this will eliminate the oppressive rentier class (bourgeoisie).  And he says that this will happen gradually (progressively) through peaceful tweaking of the system.  A thing that isn’t scarce should have a price of zero.  This means that if capital is not scarce, the interest rate should be zero.  What they have done in an attempt to make capital not scarce is essentially to seize the power to set its price (the interest rate) and set it equal to zero.  Genius huh?

Now here is Krugman declaring “if you take standard economic forecasts seriously, they point to near-zero short-term rates for a very long time.”

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