It's Not the 1930s!

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil. -- John Maynard Keynes

As "old" Europe totters on the brink of insolvency, the dead thinking of our modern economic scholastics pervades the political atmosphere to both a degree and detriment as thick and stifling as the Gulf oil slick. The classical school of our economic scholastics states, "If you're insolvent, you must cut spending. You must pay the piper." They are answered from the other side of the cathedral by the self-proclaimed followers of Mr. Keynes, the great classical economic heretic, who scream, "No, the way out of insolvency is to spend more, the government will insure all debt." Neither side seems aware the vaults of the roof of their great cathedral rain down on their heads and the walls crumble. Their beliefs and dogmas from the 19th and 20th centuries offer little practical guidance for world of the 21st. Unfortunately, that doesn't stop them from fouling the collective political nous, influencing our own generation of madmen in authority.

From almost the beginning, the greatest problem of economics has been its craving for legitimacy as a science, instead of as a system of political values. Birthed at the end of the Enlightenment, when it was in extreme bad taste to found systems of power based on theology, economics looked to science, which again and again has proved as problematic as any theology for rationalizing systems of power. The classical economics of the 19th century, most specifically the doctrine of laissez-faire, came directly out of the Enlightenment, a continuation of the loosening of the shackles of feudal society begun several centuries before with the Renaissance. At the end of the 18th and beginning of the 19th centuries, the political economy bonds of feudalism remained substantial across Europe. So, as industrial society began to flourish, a doctrine of laissez-faire, of keeping the state away, was logical. Although in reality, as Polanyi clearly documents in The Great Transformation, the state actually played an integral role helping institute the industrial era, and contrary to zealous belief, promoting the doctrine of laissez-faire itself.

The dogma and myths of laissez-faire dominated economic thought for over a century. In the depths of the 1930s global depression, Keynes great practical heresy was to proclaim the state did indeed have a necessary and active role to play in the economy. Keynes wrote in The General Theory:

Our criticism of the accepted classical theory of economics has consisted not so much in finding logical flaws in its analysis as in pointing out that its tacit assumptions are seldom or never satisfied, with the result that it cannot solve the economic problems of the actual world...

Whilst, therefore, the enlargement of the functions of government, involved in the task of adjusting to one another the propensity to consume and the inducement to invest, would seem to a nineteenth-century publicist or to a contemporary American financier to be a terrific encroachment on individualism. I defend it, on the contrary, both as the only practicable means of avoiding the destruction of existing economic forms in their entirety and as the condition of the successful functioning of individual initiative.

Keynes' radicalism, as so often the case, was simply common sense. Hitting deeper into the established dogma of industrial capital economics, Keynes shattered the notion of "natural" market equilibrium, using the persistent problem of mass unemployment of the mid-30s as refutation. Keynes wrote:

THE outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.

By 1935, when, Keynes wrote these words, the world had been in a pronounced period of deflation for almost a decade. Money and debt had undergone massive destruction accompanied by tremendous industrial and agriculture over-capacity. Keynes' solution was simple, the government should step-in and in various ways provide employment and money. It was a common sense solution for a still young industrial society.

The classical economists of the 19th century were writing for their times, just as Mr. Keynes was writing very much for his. In the 19th century, industrialization was just beginning, while wide-spread in the US, Japan, and parts of Europe by the 1930s, it still had a great deal to grow. However, the world of 2010 is far different from the world of the 1930s. The US, Japan, and Western Europe are completely mature industrial societies. This is causing great problems for economic theorists, who insist on using industrial thinking, values, and institutions for problems that are non-industrial in nature, and most importantly, will not respond to the industrial elixir of infinite growth. Unlike his modern disciples, Mr. Keynes, eighty-years ago broached the growth problem in his Economic Possibilities of Our Grandchildren, though rightfully noting, it wasn't a challenge of his time, but for the future.

In the mature industrial West, including Japan, we're not going to solve our great political economy conundrum by simply spending more money and creating more jobs. We have chronic and unhealthy structural problems needing to be addressed. One of the most important structural maleficence, particularly for the Unite States, is the development of the massive service, or more accurately and detrimentally, "servants" economy. The highest priest of classical economics, Adam Smith, stated in The Wealth of Nations:

"Thus the labor of a manufacturer adds, generally, to the value of the materials which he works upon, that of his own maintenance, and of his master's profit. The labor of a menial servant, on the contrary, adds to the value of nothing. A man grows rich by employing a multitude of manufacturers; he grows poor by maintaining a multitude of menial servants."

For the last four decades, under the dogma of industrial market capitalism, the US deindustrialized its economy, destroying the manufacturer, and populating the economy with a vast multitude of menial servants. How was this possible? One word -- debt -- in fact, outside of war, one of the greatest and most rapid indenturings of a population in human history. The problems of debt, and call it post-industrial political economy, will not lend themselves well to Keynes' 1930s solutions. Particularly, the rise of the servants economy has proved Keynes wrong on an essential point. Keynes wrote at the end of The General Theory:

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.

The shifting of the American economy from a manufacture to a servants economy over the past several decades exploded debt, resulting in a new and almost universal domination by the rentier class. New categories of rent have been created that even a mind as imaginative as Mr. Keynes' couldn't have conceived. Most despicably, in what must have Mr. Keynes spinning violently in his grave, the state intervention in the economy over the last couple years has been overwhelming to bailout the rentier class and their bad debt, further indenturing the multitude to perpetual servitude. We don't need more debt, we need to destroy much of the bad debt, thus freeing the economy. We need the disappearance of the rentier class, allowing the necessary sea-change. It is time for new ideas to loose the malevolent grip of vested interests.