A Defense of Keynes: Well, Not Really


Of all of the articles I have written, this one has pained me the most to write. In it, I will have to site and at times defend John Maynard Keynes, not his “General Theory”, but another paper he wrote in 1930 titled, “Economic Prospect of our Grandchildren“. If you haven’t read it, please read it first. It’s not very long.

Capitalism Is Dead

In this paper, Keynes attempts to debunk the popular Depression Era notion that capitalism has run its course. It has produced all that it could, it ran out of steam, the people need something new and better, and so on. I’m referencing this paper by Keynes because within it he makes an interesting insight that’s worth remembering. It is this portion of the paper which I will attempt to put into its correct light.

Keynes says in, “Economic Prospect of our Grandchildren”,

“I draw the conclusion that, assuming no important wars and no important increase in population, the economic problem may be solved, or be at least within sight of solution, within a hundred years. This means that the economic problem is not-if we look into the future-the permanent problem of the human race.”

Keynes goes on to describe a future, within the next one hundred years, that will see liberal societies having to make the adjustment from a labor-centric economic system to a leisure-centric system. In the first section of the paper, he does a good job describing the economic history of man being effectively unchanged, due to the lack of important inventions that could have been put to productive uses, industrially. Not until important labor-saving machinery was implemented in the line of production did the worker consider the notion of leisure. This had only been made possible, he concludes, by capital accumulation from compound interest, over a long period of time.

Leisure, he stresses, will be the point of contention. He adds,

“Yet there is no country and no people, I think, who can look forward to the age of leisure and of abundance without a dread. For we have been trained too long to strive and not to enjoy. It is a fearful problem for the ordinary person, with no special talents, to occupy himself, especially if he no longer has roots in the soil or in custom or in the beloved conventions of a traditional society. “

Keynes admits that the adjustment from a labor-centric to a leisure-centric society will not be without its pains and tribulations. How are otherwise uneducated people supposed to adjust to a life where self-fulfillment will be important and not subsistence.

Throughout the piece, Keynes warns of the upper classes. He makes the reader aware that the rich will strive, in every way, to thwart a future where the general population will not have to worry about work. But, because these classes of people will continue to strive for wealth accumulation, they will lift everyone in society to this higher level. It is there capital accumulation that will be their downfall, and thus, propel everyone into the age of leisure. It just can’t be helped.

Modern Implications

A future where leisure is the problem and not working is an auspicious thing to contemplate. Was Keynes crazy? Not really. He attempted to follow the logic. He saw a future of ever accumulating capital, yielding more and more labor-saving devices, leading to more and more production and leisure for workers. He admitted that the future will not be completely labor free.

In order for there to be enough work to go around, he writes,

“But beyond this, we shall endeavour to spread the bread thin on the butter-to make what work there is still to be done to be as widely shared as possible. Three-hour shifts or a fifteen-hour week may put off the problem for a great while. For three hours a day is quite enough to satisfy the old Adam in most of us!”

The “old Adam” reference being the need to work in order to feel a sense of accomplishment and satisfaction.

It’s been some 88 years since Keynes published this article. The happy future he described doesn’t seem to be coming to fruition for most of working society. As a matter of fact, discontent seems to be the status-quo.

There are questions that need to be asked. What happened that all of these labor-saving devices and automated systems aren’t leading to overall prosperity? Although more people are out of work, have been replaced through “Creative Destruction” and are given oodles of free-time, they still believe themselves to be worse-off. Maybe Keynes missed the boat with his rose-colored predictions. I don’t think so and I’ll tell you why.

The Reason for Our Discontent

If I had to reduce our current state of affairs into one word, it would be interventionism. If you have ever studied Keynes, which is synonymous with masochism, you would learn that the man is a walking contradiction. Here we read in this paper how Keynes defends the market system from the detractors of his time. He demonstrates how capitalism is not dead, in fact, is rolling along to give us all a wonderful life of leisure. Then he publishes “The General Theory” only six years later!

Evidently, the man believes there’s a happy future for all mankind only if technocrats in powerful places, taken from the very same wealthy class of people he warns us about, will guide us to it. Only by intervening in the market process, because capitalism failed in 1929, can we be brought over the threshold into a brighter future? It was rumored that Keynes had a drug addiction problem. If you compare the Keynes of 1930 to the Keynes of 1936, you’d have to agree that he had to be on something. Lord Keynes, how had capitalism been so successful, for so long, without your prescription of interventionism?

He was correct in 1930. The future he logically envisioned would have been realized. We all would be many times wealthier, not nominally, but in normative terms. But, because of Federal Reserve policy we haven’t, or better put, cannot realize it. The manipulation of interest rates, monetary inflation, and market manipulation through “Operation Twist” and others, has caused all of this malfunction. All of which can be laid at the feet of one Lord John Maynard Keynes who prescribed the intervention in the first place. Maybe Keynes never intended so much intervention, but this is the logical outcome of such policies and for that, he gets the blame.

The Outcomes

Today, we concern ourselves with ever-growing unemployment due to automation. It’s supposed to make our lives better by giving us more leisure, and it has given us more free-time. But free-time and leisure aren’t the same things. Leisure is care-free living, and free-time is just extra time on your hands with nothing to do with it. Therein lays the rub.

Fed policy has so distorted economic activity that workers are having to work longer, not less, to make ends meet. Their wages purchasing less and less. Those who are displaced are finding it harder to get by. More of these fall into the trap of government-provided welfare because state intervention (regulations and taxation) is making it harder to provide private welfare. Many others live on credit in order to maintain a certain “middle-class” standard of living.

Because such things as Fed policy, monetary policy, and economics in general, will bore average people to death, they have no clue as to what plights them. They erroneously clamor for higher wages to make ends meet, not realizing that rising prices have always outpaced any wage rate hikes. And always will. That’s why we’ve lost some 96% of our purchasing power. The answer is not higher wages, but lower inflation and a sound money. But, they don’t know that. Those who control “the narrative” aren’t telling them.

Pensions and retirements are becoming a thing of the past. Only a momentary blip on the historical radar. Again, the Fed’s “zero interest rate policy” or ZIRP, is the culprit. But, the average worker isn’t aware of this. He or she is just seeing their future disappear in the casino of the stock market in the pursuit of “yield”.

Economists, especially academics, are almost totally unaware of these issues. I include some Austrians in this category because they don’t have to toil on the ground level with ordinary workers. But, being a blue collar guy, I have to confront these things every day from my coworkers. This is where the rubber meets the road when you have to explain sound economic lessons to someone who is about to lose their pension. Why they are going to work until they drop dead or are replaced by a self-driving truck. They hope for the former. If the latter happens first, then they stand to lose everything they’ve worked for. Forever. Think about that.

Conclusion

Lord Keynes was right in 1930 and extremely wrong in 1936. Sadly, the impact of “The General Theory” has devastated any hope for a future of carefree leisure. Sadder yet, the understanding that we could actually be there, right now. What would you be doing with your leisure after you put in your 15 hour work week? I definitely wouldn’t be writing this article.

Keynes believed that social norms would change as societies would progress into the age of leisure. Self-fulfillment and development would take center stage, instead of jobs and occupations. One would be defined, not by their occupation or profession, but by their interests and studies. Human development would grow to new heights because of the successes of capitalism. But, what Keynes prescribed in 1936 was intervention which gave us more cronyism and endless war.

I hope that people will become so disgusted with the status-quo that something positive will happen. Simultaneously, I’m cautious that the burden of more unemployed and unproductive workers may prove to be such an economic and fiscal strain on the state that something even worse may happen. It’s too bad we didn’t get to keep the legacy of John Maynard Keynes of 1930.  Too bad indeed.

Image credit: [Dinero]

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