[American Affairs, 1947]
The work cumbersomely entitled, The General Theory of Employment, Interest and Money, now commonly abbreviated as The General Theory, was published in 1936. It was therefore only ten years old when the author, John Maynard Keynes, died last April. Probably no other book has ever produced in so little time a comparable effect. It has tinctured, modified, and conditioned economic thinking in the whole world.Upon it has been founded a new economic church, completely furnished with all the properties proper to a church, such as a revelation of its own, a rigid doctrine, a symbolic language, a propaganda, a priestcraft, and a demonology. The revelation, although brilliantly written, was nevertheless obscure and hard to read, but where one might have expected this fact to hinder the spread of the doctrine, it had a contrary result and served the ends of publicity by giving rise to schools of exegesis and to controversies that were interminable because nothing could be settled. There was no existing state of society in which the theory could be either proved or disproved by demonstration — nor is there one yet.
The moment of the book was most fortunate. For the planned society they were talking about the Socialists were desperately in need of a scientific formula. Government at the same time was in need of a rationalization for deficit spending. The idea of welfare government that had been rising both here and in Great Britain — here under the sign of the New Deal — was in trouble. It had no answer for those who kept asking, "Where will the money come from?" It was true that government had got control of money as a social instrument and that the restraining tyranny of gold had been overthrown, but the fetish of solvency survived and threatened to frustrate great social intentions.
Just at this historic crisis of experimental politics, with the Socialists lost in a wilderness lying somewhere between Utopia and totalitarianism, and with governments adrift on a sea of managed currency, afraid to go on and unable to turn back, the appearance of the Keynes theory was like an answer to prayer. Its feat was twofold. To the Socialist planners it offered a set of algebraic tools, which, if used according to the manual of instructions, were guaranteed to produce full employment, economic equilibrium, and a redistribution of wealth with justice, all three at once and with a kind of slide-rule precision — provided only that society really wanted to be saved. And the same theory by virtue of its logical implications delivered welfare government from the threat of insolvency. That word — insolvency — was to have no longer any meaning for a sovereign government. The balanced budget was a capitalist bogey. Deficit spending was not what it seemed. It was in fact investment; and the use of it was to fill an investment void — a void created by the chronic and incorrigible propensity of people to save too much. "There has been," he said, "a chronic tendency throughout history for the propensity to save to be stronger than the inducement to invest. The weakness of the inducement to invest has been at all times the key to the economic problem." By investment he was supposed to mean the use of capital in the spirit of adventure.
This idea was the very base of the theory. From oversaving and underinvestment came unemployment. And when from this cause unemployment appeared, as it was bound to do, first periodically and then as a permanent evil, the only cure was for government to spend the money. Among the algebraic tools was the famous multiplier by use of which the experts would be able to determine precisely how much the government would have to spend to create full employment.
Briefly therefore the theory was that when people were not investing enough in their own future to keep themselves all at work the government must do it for them. Where and how would the government get the money? Well, partly by taxing the rich, who notoriously saved too much; partly by borrowing from the rich, and, if necessary as a last resort, by printing it — and everything was bound to come out all right because from full employment society at large would grow always richer and richer. Ultimately the economic satisfactions of life would become dirt cheap, the interest rate would fall to zero, and the sequel would be the painless extinction of the rentier class, meaning those who live by interest and produce nothing... Read More from Source>>
