In the General Theory (otherwise known as The General Theory of Employment, Interest and Money) Keynes made four key comments that presage the practice of Shimomuran investment credit economics. First, Keynes stated that “I am myself impressed by the great social advantages of increasing the stock of capital until it ceases to be scarce.” Book 6, Chapter 22, Section 4, pg.325
That is precisely what investment credit creation at the central bank does – it increases the stock of capital until it ceases to be scarce. And the positive social and political results of that policy are truly immense, as the developmental advantages of Japan and China testify.
Two chapters later Keynes expands on that thought by observing that “But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital.” Book 6, Chapter 24, Section 2, pg.376
And again, that observation precisely hits the spot: there are no intrinsic reasons for the scarcity of capital, as the successful implementation of policies of investment credit creation have demonstrated. Keynes also said “If I am right in supposing it to be comparatively easy to make capital-goods so abundant that the marginal efficiency of capital is zero, this may be the most sensible way of gradually getting rid of many of the objectionable features of capitalism.” Book 4, Chapter 16, Section 4, pg.221
The most objectionable feature of present-day Anglo-Saxon capitalism is its disregard for the poorer sections of society and the removal or reduction of the welfare safety net to families and disadvantaged people in the name of government economies. That feature is particularly despicable because in many Anglo-Saxon countries the gains from economic growth during the last thirty years or so have gone to the richest social groups and living standards of the poorest 10% have actually fallen substantially in real terms. As the 2013 CIA world Factbook says about US income distribution in the fourth sentence in the Overview of the US economy:
“Since 1975, practically all the gains in household income have gone to the top 20% of households. Since 1996, dividends and capital gains have grown faster than wages or any other category of after-tax income.”
The same is true in post-Thatcher Britain. The same source adds, among several other things, that one of the major long term economic problems of the USA is the “stagnation of wages in lower-income families.”
The wealth and welfare of the working class, in all modern economies, depends crucially upon the existence, within the economy, of a flourishing manufacturing sector. Where de-industrialisation has occurred – mainly due to the absence of an industrial banking or an investment credit economy (see http://londonprogressivejournal.com/article/view/1512/nations-get-what-their-financialindustrial-systems-deliver-a-comparative-analysis-of-three-different-groups-of-financialindustrial-systems) unemployment is rife among the working class and there is a marked tendency for Anglo-Saxon governments to victimise the large army of unemployed through lower unemployment benefits, general cuts in supportive services and to punish the lowly paid by wage cuts as well as legislating for worsened pensions for all workers. These actions victimise the poor and underprivileged and even most employed people when the real culprit is the crass economic stupidity of current and previous governments.
A policy of investment credit creation increases investment in the factories and employment particularly in working class and lower income families because income increases generally occur at all income levels in higher growth economies. This is not to say that national income in high-growth economies is more fairly shared – a glance at the Gini indexes demolishes that idea – but there are gains in household income across all income levels due to higher growth. In the USA and the UK, the lower three quarters of the income groups have, since the Thatcher and Reagan years, paid the price for relative economic failure, and the major policy proposals of the UK Coalition Government is that they should suffer further loss. All income groups in China have gained a great deal from high growth during the last three decades and while a lot of the gains from growth have gone to the already rich, the wages and living standards of the poor and the median income families have experienced rapidly rising living standards.
One major moral justification for economic growth has been that it improved the lot of the poorest social groups. That justification is less valid in recent decades for the Anglo-Saxon nations where governments have, since 1980 or so, legislated against union activity and thus reduced the bargaining power of labour with results that are now beyond all reasonable doubt. Wages and salaries should not stagnate during the years of relatively higher growth as they have done in the USA and the UK. A better outcome would have resulted if the issue of income distribution had been decided by market forces rather than government intervention on the side of the relatively rich.
And the most appropriate Keynesian observation with regard to Shimomuran investment credit might be “I expect to see the State, which is in a position to calculate the marginal efficiency of capital goods on long views and on the basis of the general social advantage, taking an ever greater responsibility for directly organising investment” Book 4, Chapter 12, Section 8, p. 164
“Indirectly enabling investment” comes closer to describing the current best prescription, because there is no more effective economic policy than the combination of state power to create investment credit combined with the capability of the private sector to invest these funds. But “organising investment” to provide the social overhead capital which is the remit of government is equally valid, as the city construction of the “Chinese Dream” illustrates.
And Keynes has left us in no doubt what the right remedy to the trade cycle would be:
“The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom.” Book 6, Chapter 22, Section 3, p. 322
The Anglo-Saxon economies, where private investment is funded out of continually lower profits due to foreign competition, have in fact come closer during recent decades to having abolished booms and keeping us permanently in an ever-deepening depression. That kind of politically driven economic ineptitude cannot be allowed to persist. Investment credit creation at the central bank enables a continuous economic explosion and the production of superior goods and services from up to date factories and enterprises. The power to abolish slumps and keep a country perpetually in a quasi-permanent boom, limited only by the domestic rate of investment in innovation and enterprise, is now possible through a Shimomuran policy of investment credit creation.
A understanding of Shimomuran economics and a government policy of investment credit creation does that. Nothing else comes close.
The politicians in the economies of Japan and China have both implemented these Keynesian insights on a scale that even Keynes did not anticipate. They have implemented them in peacetime, showing a courage to apply that economic knowledge to the lasting benefit of their people.
It is now high time for the politicians in the governments in the Anglo-Saxon economies and Europe to act to implement similar measures showing an equivalent courage and a matching knowledge of economic forces.
After all, why would any competent and knowledgeable government not assist the process of wealth creation? The answer as usual is in the question. There is no bar to more effective government action based upon a deeper understanding of economic forces. Once an economic understanding of what can be done to improve things is brought into being, it is only a metter of time before it will be done.
© George Tait Edwards 2013Tags: Domestic (UK)
Categorised in: Article
This post was written by George Tait Edwards