[p2p-research] Feedback on a Summary/Explanation of John Maynard Keynes' General Theory
Paul D. Fernhout
pdfernhout at kurtz-fernhout.com
Sat Nov 21 08:27:40 CET 2009
These are notes on a link Ryan mentioned to me as a good summary of Keynes'
ideas by Aaron Swartz, available here:
"A Summary/Explanation of John Maynard Keynes’ General Theory"
I'm just putting this to refer to it later. Most people here probably won't
want to read this. :-) Ryan might be. Essentially though, it is my
post-scarcity perspective on a summary of a book by John Maynard Keynes, as
a sort of stream of consciousness, where I pick out some parts as I read it
and reacted to them. Sometimes my reaction is more things they made me think
about than reacting directly to the points in them.
This note is so long (about 93K) that anyone replying would have to break it
up and trim most of it, given a 100K limit or so for this mailing list, or
their reply will not go through.
All things in quotes below are a section of that page. Those are mostly just
summaries of stuff Keynes wrote by Aaron Swartz, or sometimes Keynes' actual
words (nested further in quotes). My notes are after. I included some
material from that page to give context as to what my comments were inspired by.
Equals signs separate sections, I tried to keep it to one quote and one
response between those equal signs. Sometimes there are several comments in
relation to different parts of the same "section".
For reference on Keynes:
"As a man of the centre described as undoubtedly having the greatest impact
of any 20th century economist, Keynes attracted considerable criticism
from both sides of the political spectrum. In the 1920s, Keynes was seen as
anti establishment and was mainly attacked from the right. In the "red
1930s" many young economists favoured Marxist views even in Cambridge,
and while Keynes was engaging principally with the right to try and persuade
them of the merits of more progressive policy, the most vociferous criticism
against him came from the left who saw him as a supporter of capitalism.
From the 1950s and onwards most of the attacks against Keynes have again
been from the right."
The book itself being discussed is available online here:
While writing this I had idle thoughts of going back to school for a PhD in
economics at a place nearby. :-)
"The Department offers courses in traditional fields such as introductory
economics, microeconomics, macroeconomics, econometrics, and international
economics. In addition, the Department's teaching and research includes
specialized fields such as ecological economics, the economics of
technological change, the economics of energy, research and development,
monetary theory and policy, and financial regulation. "
But the feeling eventually passed. :-) Especially when in my hubris I
thought I'd like to be learning about this by giving the classes on it. :-)
But I just don't think I could take the boredom of slogging through historic
model after historic model that was missing obvious things now. Still, maybe
it might be made into fun if I coded up each model as a simulation?
I do think it would be fun to build computer models about all this. Or hang
out with some people like that for a time. A nice list of all the types of
simulation approaches out there these days:
Related by me:
"[p2p-research] FOSS modeling tools (was Re: Earth's carrying capacity and
Even in my notes below, my thoughts seem to keep coming back to computer
simulations on these economic issues, maybe individual based models like was
done at Brookings. It would be nice to be able to experiment on some of
these themes, and maybe refine some ideas and also make them more
persuasive, same as simulations have been proving useful in biology to study
ecology and evolution and gain insight into various processes. That's my
version of Andrew's point about wanting a mathematical basis for P2P. :-)
Keynes may well address issues I bring up in his other writings; if he has,
feel free to point it out (also, I was working mostly from the summary, not
the original, so another source of confusion).
Essentially, Keynes seems to assume (with some of these reading between the
lines, others he says explicitly):
* people won't do good stuff unless they are paid to do it
* the only right way to get stuff or services is to buy them
* the only right way for people to get money is to earn it working
* the quality of the actual "work" in terms of enjoyability is ignored
* like most economists, promoting "community" is ignored
* it is good that banks are the first to get newly created money
* supply should come before demand
* innovation is not an important issue to consider in economies
Keynes was writing in 1935, so I'll cut him some slack on that last point,
unlike the other ones. :-) But taken together, those points suggest why
Keynes does not have that much to say about a P2P economy -- even though his
writing is worth reading for its own sake as good writing by an obviously
creative and playful mind who had a profound effect on global politics.
It seems like Keynes almost got post-scarcity though. He kind of saw it a
little, in that he saw abundance was an implication of healthy economic
policy. He talks about aspects of policy that might lead up to abundance and
how it would change the value of money, but did not quite see how to get
there or what it might look like, perhaps because of the above assumptions.
But, I'm writing almost a century later, and I have read a lot of sci-fi
like by James P. Hogan written decades after Keynes' "General Theory", so
I'm "standing on the shoulders of giants" here. :-)
=== Book I: section 2
There are two obvious problems with this. First, people may refuse to work
for a lower nominal wage when they’ll accept working for a lower real (i.e.
inflation-adjusted) wage. That is, if management decides to pay people $4 an
hour instead of $5, people might go on strike, but nobody ever goes on
strike demanding a raise because the cost of milk has gone up. (So inflation
might actually be a better solution than wage cuts.)
Second, if wages go down, then the cost of making things goes down, which
means that prices go down, which means that in real terms wages end up
staying about the same.
In general, there is an issue about how people have lots of ways to spend
their time, like with friends, family, hobbies, subsistence activities, and
volunteerism, and so "paid work" competes with those other things. So, in
choosing whether to "work" you weigh all of that.
As we think about a future economy or p2p society, where opportunities to do
these alternative things increase, it may be even harder to get people to
want to do paid work where someone tells you what to do. For example, right
now the internet makes staying at home a lot more interesting than it used
to be for most people. I read one article suggesting that people were not
trying so hard to get new jobs because the internet was so entertaining, and
so cheap to use.
So, it is not just a supply and demand of labor and work. It is also a
supply and demand for entertainment, where paid work competes with other
interesting things to do.
==== Book II: section 3
"The completeness of the [classical] victory is something of a
curiosity and a mystery. It must have been due to a complex of suitabilities
in the doctrine to the environment into which it was projected. That it
reached conclusions quite different from what the ordinary uninstructed
person would expect, added, I suppose, to its intellectual prestige. That
its teaching, translated into practice, was austere and often unpalatable,
lent it virtue. That it was adapted to carry a vast and consistent logical
superstructure, gave it beauty. That it could explain much social injustice
and apparent cruelty as an inevitable incident in the scheme of progress,
and the attempt to change such things as likely on the whole to do more harm
than good, commended it to authority. That it afforded a measure of
justification to the free activities of the individual capitalist, attracted
to it the support of the dominant social force behind authority."
"But although the doctrine itself has remained unquestioned by orthodox
economists up to a late date, its signal failure for purposes of scientific
prediction has greatly impaired, in the course of time, the prestige of its
practitioners. For professional economists, after Malthus, were apparently
unmoved by the lack of correspondence between the results of their theory
and the facts of observation;—a discrepancy which the ordinary man has not
failed to observe, with the result of his growing unwillingness to accord to
economists that measure of respect which he gives to other groups of
scientists whose theoretical results are confirmed by observation when they
are applied to the facts."
"The celebrated optimism of traditional economic theory, which has led
to economists being looked upon as Candides, who, having left this world for
the cultivation of their gardens, teach that all is for the best in the best
of all possible worlds provided we will let well alone, is also to be
traced, I think, to their having neglected to take account of the drag on
prosperity which can be exercised by an insufficiency of effective demand.
For there would obviously be a natural tendency towards the optimum
employment of resources in a society which was functioning after the manner
of the classical postulates. It may well be that the classical theory
represents the way in which we should like our economy to behave. But to
assume that it actually does so is to assume our difficulties away."
I'll agree with what Keynes said there. Very insightful, especially as a
meta-reflection on the social dynamics of academia in 1935. And has it
gotten any better since? Or maybe, worse? It still rings very true today.
And also, even in 1935: "insufficiency of effective demand".
==== Book II: section 4
"We can’t measure net output, but we can count the number of people
employed. In general, if more people are working then more stuff is getting
made, although this obviously isn’t a perfect connection. But employment is
kind of a more interesting number and it will have to do."
Lots of ways that people can make work for each other -- bureaucracy, war,
crime, competition, confusion, and so on... One third of every US health
care dollar goes to bureaucracy.
==== Book II: section 4
"As problematic as this is, Keynes points out that it’s a lot more realistic
than the classical theory, which just seems to magically assume everyone is
paid in proportion to their productivity. By subsuming more efficient people
with their machinery, Keynes says he better deals with the usual case, which
is that the increase in efficiency goes to their boss (who owns the
machines). And when more efficient workers actually are paid more, he takes
that into account as noted above."
A key point in the Triple Revolution memorandum is disagreeing with the
classical economic assumption that the the right to consume would magically
distributed across society somehow. Thus they recommend doing it explicitly,
with some form of basic income.
"The Triple Revolution memorandum"
As a first step to a new consensus it is essential to recognize that the
traditional link between jobs and incomes is being broken. The economy of
abundance can sustain all citizens in comfort and economic security whether
or not they engage in what is commonly reckoned as work. Wealth produced by
machines rather than by men is still wealth. We urge, therefore, that
society, through its appropriate legal and governmental institutions,
undertake an unqualified commitment to provide every individual and every
family with an adequate income as a matter of right.
This undertaking we consider to be essential to the emerging economic,
social and political order in this country. We regard it as the only policy
by which the quarter of the nation now dispossessed and soon-to-be
dispossessed by lack of employment can be brought within the abundant
society. The unqualified right to an income would take the place of the
patchwork of welfare measures – from unemployment insurance to relief –
designed to ensure that no citizen or resident of the United States actually
We do not pretend to visualize all of the consequences of this change in
our values. It is clear, however, that the distribution of abundance in a
cybernated society must be based on criteria strikingly different from those
of an economic system based on scarcity. In retrospect, the establishment of
the right to an income will prove to have been only the first step in the
reconstruction of the value system of our society brought on by triple
==== Book II: section 5
Either way, new expectations don’t always take effect immediately (if you
just opened a new store and then decide it wasn’t worth it, you don’t
immediately close it). And the process of adjusting can have some odd
effects: if you need to quickly ramp up production, you might keep hiring
until you have more employees than you really need in the long-run. You use
the extra people to get you up to speed, then you lay them off. The result
is “a gradual crescendo in the level of employment, rising to a peak and
then declining to the new long-period level.” This can happen even if you
don’t expect to sell more things, but just a slightly different thing: you
“overhire” to get up to speed on the new model, but then fire people until
you’re back down to your previous level.
"An uninterrupted process of transition, such as the above, to a new
long-period position can be complicated in detail. But the actual course of
events is more complicated still. For the state of expectation is liable to
constant change, a new expectation being superimposed long before the
previous change has fully worked itself out; so that the economic machine is
occupied at any given time with a number of overlapping activities, the
existence of which is due to various past states of expectation."
That said, today’s decisions are based on the conditions of today and
expectations about tomorrow — not on past expectations or the conditions of
the past. And, in practice, people don’t calculate their expectations from
scratch each morning. They keep doing what they did yesterday unless they
have a reason to change. Long-term expectations can’t be easily checked, so
when they do change, they often change suddenly. Thus they can’t even be
Insightful, and beginning of talking about people's mental models, as well
as feedback issues and timeconstants and inertia. And the possibility for
sudden change of long term expectations. A lot of cybernetic ideas here.
On hiring, people may hire a lot to then pick the best fit for their company
after evaluating performance. (Because performance depends in part on
physical and mental health, as well as philosophical outlook, and also
deference, employers are evaluating all that indirectly, which is not so
obvious from an employment interview and may be illegal to ask about.)
Also on hiring, what if it makes more economic sense (or requires less
management) to buy a machine to do the work? Or even try to "crowdsource"
it? That is a different problem than Keynes thought much about. But it is
the issue our society more and more faces now with robots and AI and the
internet and the free culture movement.
===== Book II: section 6
"When you’re producing something, there are a couple of things involved. One
is the amount of capital and equipment and so on you use up, which we’ll
call the user cost. Another is the amount you pay to employees and other
companies and so on, the factor cost. These two combined are the prime cost.
The entrepreneur’s income is the value of his output less the prime cost —
that’s what he tries to maximize."
Confusion of physical and fiat dollars under one word "capital". This
problem is woven throughout mainstream economics.
==== Book II: section 6
"[AS: I’ve been saying businesses because I find it clearer, but Keynes
actually says entrepreneurs. I think I also use this kind of interchangeably
with capitalists. Sorry.]"
Difference between a model of reality and reality itself.
People believing in a model and acting on it may make the model more true
One may have a different model but still accept you need to interact with
people working from a different model. And you must then think about what
model they have of your model. And what their model is of your model as far
as their model. Etc? :-)
===== Book III: section 8
“The fundamental psychological law,” he says, is that, on average, the
amount people spend increases as the amount they make increases, but not as
quickly. (If you make $50K a year, you might spend $40K of it. If you make
$1M, you might spend $500K of it. Obviously a lot more in absolute terms,
but far less proportionately.) And this is especially true in the short-term
— people’s habits take time to catch up with their incomes.
But this means that as national income increases, a smaller proportion of
it will get spent, so more of it will have to be invested. And when national
income falls, a larger proportion gets spent as people dip into savings and
governments go into deficit. This is fortunate, because lower consumption
also means lower income (when people buy less, businesses make less, so they
pay you less). If consumption fell at the same rate as income, we’d fall
into a downward spiral: lower consumption would mean lower income, which in
turn would mean lower consumption, and soon we’d all be out of a job.
Important to understand feedback cycles. And cybernetics.
"Cybernetics is the interdisciplinary study of the structure of regulatory
systems. Cybernetics is closely related to control theory and systems
theory. Both in its origins and in its evolution in the second-half of the
20th century, cybernetics is equally applicable to physical and social (that
is, language-based) systems."
I talk about that here, in terms of three levels of modelling for rethinking
==== Book III: section 8
“Consumption — to repeat the obvious — is the sole end and object of all
economic activity.” What are we making things for if not to use them? People
can either be put to work making things for people to use today or making
things for people to use tomorrow, but that tomorrow “cannot be pushed
indefinitely into the future.” After all, an hour of labor cannot be “saved”
and put into a bank for a rainy day! If people are out of work now, the time
they’re wasting will never be recovered. [AS: This is truly brilliant. It’s
hard to convey the excitement I felt when reading this.] Saving money for
the future is not the same as making things for the future — it’s only the
latter that’s useful.
Ignores that fact that work may be more or less pleasurable or more or less
personally developing depending on the type of work or the work environment.
Work can also be play and education. Related:
"The Three Boxes of Life and How to Get Out of Them: An Introduction to
Life/Work Planning" by Richard N. Bolles
Richard Bolles (also writes "What Color is Your Parachute") advises on how
individuals can integrate work, play, and learning into every year of their
life (as opposed to school for years, work for years, retire for years).
But, I don't recall him talking about how to change society so that happens
naturally for everyone? This is obvious an issue economist neglect. Like Bob
Black says, no one wants to talk about "work" itself, just who will do it
and how much different people will get out of that.
=== Book III: section 8
"Another way to look at it is the more stuff we make for tomorrow, the less
stuff we need to make tomorrow. And then what do we do? At some point we
just need to consume more stuff."
Or, people become satiated or "satisfice" in some area and focus higher up
in "Maslow's hierarchy of needs" like to be social, be respected for
contributions, or to be creative and self-actualizing (the last may be
facilitated by leaving paid employment for many).
==== Book III: section 8
People seem to recognize this when it comes to government making stuff.
‘“What will you do,” it is asked, “when you have built all the houses and
roads and town halls and electric grids and water supplies and so forth
which the stationary population of the future can be expected to require?”’
But the same logic applies to private investment. What will we do when we’ve
built all the factories the people of the future can be expected to use?
Money can’t survive on its own. If we don’t ever spend it, it becomes
Exactly. And in fact, to draw a different conclusion then implied, money
does become worthless in a post-scarcity economy. And not just worthless
like a confederate dollar (ignoring historical value to collectors), but
worthless as in people don't think about it much or let their behavior be
governed by it.
===== Book III: section 10
"But spending can have negative effects as well. [AS: Keynes apparently has
government investment — i.e. stimulus — in mind here, although he never
really comes out and says it.] If the interest rate goes up, that will slow
investment. If people lose “confidence” because of all the spending, they
may decide to hold onto their money. And some of the money can “leak” out to
other countries. But this just weakens the multiplier, it doesn’t eliminate it."
I've reached section #10 but I begin to lose interest as he talks about
"interest". :-) And other monetary policy.
General beginning of a feeling that there is a confusion in Keynes' work
between cybernetic levels from mixing physical stuff, with human actions,
with fiat dollar ration unit kanban tokens, lumped together in some sort of
commonality called capital or cost or money or something like that. :-)
==== Book III: section 10
But, still good stuff ahead:
"“Pyramid-building, earthquakes, even wars may serve to increase wealth, if
the education of our statesmen on the principles of the classical economics
stands in the way of anything better.”"
Because inflation from printing money (or countering deflation) is an
unavoidable tax on the wealthiest as far as they hoard currency? Or because
it justifies direct taxation to move control of resources from the wealthy
to the poor who become workers?
Keynes is dancing around the idea of a basic income, but won't admit it
because it would be against the culture he is in, assuming work is only done
if it is motivated by a need to eat or, after the belly is full, greed and
==== Book III: section 10
"(Keynes goes on to contrast gold-mining with building new houses which,
being actually useful, has the side effect of decreasing the rent of old ones.)
"Ancient Egypt was doubly fortunate, and doubtless owed to this its
fabled wealth, in that it possessed two activities, namely, pyramid-building
as well as the search for the precious metals, the fruits of which, since
they could not serve the needs of man by being consumed, did not stale with
abundance. The Middle Ages built cathedrals and sang dirges. Two pyramids,
two masses for the dead, are twice as good as one; but not so two railways
from London to York. Thus we are so sensible, have schooled ourselves to so
close a semblance of prudent financiers, taking careful thought before we
add to the “financial” burdens of posterity by building them houses to live
in, that we have no such easy escape from the sufferings of unemployment. We
have to accept them as an inevitable result of applying to the conduct of
the State the maxims which are best calculated to “enrich” an individual by
enabling him to pile up claims to enjoyment which he does not intend to
exercise at any definite time. [emphasis added]"
Yes. See, here in deep insight. Not building physical things for a
post-scarcity future where money does not matter because the economic model
says not to. He is seeing the madness. It seems the economic model is
defending itself. The mythology is defending its own existence and
dominance. The memes are self-perpetuating by being a self-fulfilling prophecy.
===== Book IV: section 11
"Of course there’s lots of different things you can invest in; we’re
assuming that you do whatever maximizes your expected return. And obviously
you’ll keep borrowing money and investing it until your expected return
reaches the market rate of interest."
Ignores risk of economic change and cultural change. Ignores obsolescence.
===== Book IV: section 11
"(Tyler Cowen, in his critical comments on the General Theory is struck by a
throw-off clause in this chapter: Keynes says that it’s unlikely interest
rates will go up if people expect inflation, since if people expected
inflation prices would have gone up already. He writes: ”This simple yet
powerful point doesn’t get the attention it ought to. Storage costs for
goods and services may eliminate this paradox but perhaps not completely.
It is striking how few economists have thought this problem through.”)"
New science sees investment ideas as spreading like a virus -- memetics. So,
there are lags.
===== Book IV: section 12
"As we noted before, capitalists invest if they expect future sales to be
high. But how do they know what future sales will be? “If we speak frankly,
we have to admit that our basis of knowledge for estimating the yield ten
years hence of a railway, a copper mine, a textile factory, the goodwill of
a patent medicine, an Atlantic liner, a building in the City of London
amounts to little and sometimes to nothing; or even five years hence.”"
And it is even worse almost a century later.
===== Book IV: section 12
In olden days, what happened was that rough-riding men of business thought
taking risks was manly and invested their money as a way of life. They got
it in their head that they were going to build a railroad, and by Jove they
did. They didn’t sit down and calculate whether they could have made more
money buying bonds instead. Bonds are for wusses.
But now people invest their money in the stock market, which revises its
profitability estimates minute-by-minute. “It is as though a farmer, having
tapped his barometer after breakfast, could decide to remove his capital
from the farming business between 10 and 11 in the morning and reconsider
whether he should return to it later in the week.” And since much new
investment money is raised on the stock market, it’s these estimates which
influence new investment.
But there is some truth to it. There are something like hundreds of
trillions of dollars in currency-like things sloshing around in the global
financial systems. They can buy and sell farm hour to hour. Part of the
crisis may be exactly this. The theory and abstract and mythical has
overwhelmed the practice and specific and physical.
===== Book IV: section 12
"This is the inevitable result of investment markets organised with a
view to so-called “liquidity”. Of the maxims of orthodox finance none,
surely, is more anti-social than the fetish of liquidity, the doctrine that
it is a positive virtue on the part of investment institutions to
concentrate their resources upon the holding of “liquid” securities. It
forgets that there is no such thing as liquidity of investment for the
community as a whole. The social object of skilled investment should be to
defeat the dark forces of time and ignorance which envelop our future. The
actual, private object of the most skilled investment to-day is “to beat the
gun”, as the Americans so well express it, to outwit the crowd, and to pass
the bad, or depreciating, half-crown to the other fellow."
Very insightful. And another aspect of transitioning to a post-scarcity
world? Also, the cost of competition as a mindset?
====== Book IV: section 12
"Or, to change the metaphor slightly, professional investment may be
likened to those newspaper competitions in which the competitors have to
pick out the six prettiest faces from a hundred photographs, the prize being
awarded to the competitor whose choice most nearly corresponds to the
average preferences of the competitors as a whole; so that each competitor
has to pick, not those faces which he himself finds prettiest, but those
which he thinks likeliest to catch the fancy of the other competitors, all
of whom are looking at the problem from the same point of view. It is not a
case of choosing those which, to the best of one’s judgment, are really the
prettiest, nor even those which average opinion genuinely thinks the
prettiest. We have reached the third degree where we devote our
intelligences to anticipating what average opinion expects the average
opinion to be. And there are some, I believe, who practise the fourth, fifth
and higher degrees."
See earlier comment on models. Which I revised a little after reading this.
===== Book IV: section 12
"And we return to the problem that many of our economic decisions depend on
our “spontaneous optimism,” our “animal spirits,” our “urge to action rather
than inaction,” not “the outcome of a weighted average of quantitative
benefits multiplied by quantitative probabilities.” This means not only that
slumps get exaggerated (since they depress animal spirits, worsening the
slump) but that economic performance depends to a large degree on keeping
businessmen happy. If electing FDR gets them depressed, they might pull back
their investments and send the economy into a slump. This isn’t a
conspiracy, it’s just the natural outcome of a system that depends on rich
people feeling good. “In estimating the prospects of investment, we must
have regard, therefore, to the nerves and hysteria and even the digestions
and reactions to the weather of those upon whose spontaneous activity it
What kind of way is that to run an economy planning for an abundant future?
A system that depends on rich people feeling good? But, yes, from my own
experience, I would say that is what we have.
===== Book IV: section 13
"OK, so we have the following model: more money reduces the interest rate
(as long as liquidity preference doesn’t go up faster), lower interest rates
increase investment (as long as expected return doesn’t fall faster), more
investment leads to more employment (as long as the propensity to consume
doesn’t fall faster), and if employment increases prices will rise which can
increase liquidity preference and thus require more money.
The public can’t control the amount of hoarding, since that’s necessarily
equal to the amount of cash. All it can do is change the price of hoarding —
the interest rate."
Sounds too simplistic. There may be lots of other factors. What we need to
do is to make economics an experimental science. That is difficult to do in
reality, but simulations of individuals (Individual Based Modelling) like
was done at Brookings could help.
"Growing Artificial Societies: Social Science From the Bottom Up"
Much of it might still be speculation, and garbage in, garbage out, but at
least we could test these simple rules economists suggest and see if they
are sensitive to minor changes in assumptions or adding in some other behaviors.
===== Book IV: section 13
"[AS: And so this is the famous paradox of thrift. While each person thinks
they’ll do better off by saving money instead of spending it, if a whole
country decides to save their money, they’re all worse off, since nobody
will have a job.]"
That seems quite true. It would be interesting to simulate this.
There might be p2p implications, as a sort of inverse. When people hoard all
their own copyrights, they are worse off. When they share them with each
other as a commons, everyone is better off, and there is a true gift
economy. But if only a few share, and everyone else is a free rider, and
then uses the extra information to harm the few gift givers (but still
keeping a proprietary economy going), then the gift givers might be worse
off. There may be some critical thresholds here. Axelrod looked into some of
this in "The Evolution of Cooperation" using computer simulations and an
iterative prisoner's dilemma contest.
==== Book IV: section 14
"It’s difficult to get people to realize that investing money doesn’t
actually lead to an increase in investments. The problem is that capitalists
aren’t buying capital per se, they’re buying an expected yield. They don’t
care how good the machine is at making widgets, what matters is whether they
can make money selling the widgets. If interest rates go up, it no longer
becomes possible for them to make money, even though the machine remains
This is one big difference from Jacque Fresco's Resource Based Economy.
==== Book IV: section 16
OK, so we’re in a liquidity trap. There are all sorts of practical problems
with lowering interest below zero, so instead what happens is that, in
laissez-faire, employment falls to reach the new low levels. The only thing
that can save us is if “millionaires find their satisfaction in building
mighty mansions to contain their bodies when alive and pyramids to shelter
them after death, or, repenting of their sins, erect cathedrals and endow
monasteries or foreign missions.” That’s no way to run a country. ...
So the government will print money to keep the interest rate at a level
corresponding to full employment. Presumably this means that interest rates
will become very low (although you don’t want them so low that nobody’s
making things to sell today). But as interest rates get lower, it becomes
profitable to invest in building things with smaller and smaller expected
If this happens, then it seems likely that within a generation expected
return will reach zero [AS: !!] and everything will reach its marginal cost.
This gets rid of the most objectionable features of capitalism — people
could still become rich by saving money, but there would be nothing left to
invest it in, so their money wouldn’t ever grow. It would be the end of the
rentier — the rich person who grows richer by using his wealth to exploiting
This is the famous part about printing our way out of a recession. But, the
big question is, who gets the money first, as essentially a gift? A basic
income to citizens? Or the banks? Or spent to hire workers on public
projects? Or given to private business as subsidies to hire workers?
Somehow this last pant links to creating a post-scarcity economy, where
money does not matter. However, I think it puts too much emphasis on cash
and bonds. There are other forms of wealth like stocks and land which allow
one to more directly control what is being done. So, there will still be a
value for those with cash to buy things and then do things with them. But
the aspiration will be more aesthetic and "product-oriented" than
"profit-oriented". (Product-oriented being a term used on the P2P and OM
list by ).
=== Book IV: section 17
The big problem is that money is the one thing market processes can’t
adjust. 1) You can’t just go ahead and make it — it can’t be “grown like a
crop or manufactured like a motor-car.” 2) You can’t reclaim it from use for
other purposes — it doesn’t have any. (Land can’t be grown either, but if we
really needed to we could free some up by moving closer together. 3) It’s
very easy to store — it doesn’t spoil. Which is why the suggestion of making
it spoil (by printing money with expiration dates, etc.) are on the right track.
Otherwise, our only relief comes from printing more money.
"Thus in the absence of money and in the absence — we must, of course,
also suppose — of any other commodity with the assumed characteristics of
money, the rates of interest would only reach equilibrium when there is full
employment. Unemployment develops, that is to say, because people want the
moon; — men cannot be employed when the object of desire (i.e. money) is
something which cannot be produced and the demand for which cannot be
readily choked off. There is no remedy but to persuade the public that green
cheese is practically the same thing and to have a green cheese factory
(i.e. a central bank) under public control.
It is interesting to notice that the characteristic which has been
traditionally supposed to render gold especially suitable for use as the
standard of value, namely, its inelasticity of supply, turns out to be
precisely the characteristic which is at the bottom of the trouble."
Ah, now I see the rationale for leaving a gold standard.
Basically, the economic control system had this dysfunction. There is a need
for "kanban tokens" to make the system work by signaling demand, but gold
has a fixed amount to make kanbans. So, by printing fiat dollars, which
cannot be counterfeited under penalty of law and imprisonment, you now have
a system where the number of Kanban tokens can be adjusted up or down as
needed. (There is still the issue of where the tokens should be placed first
when they are created, or how they should be moved sometimes by the
government, taxed from one part of the economic factory where they might be
piling up and placed somewhere else in the economic factory that needs
Alternative currencies, LETS system, and even barter (the token passed
around is a social obligation), are similar ideas to make more kanban tokens.
Still, there are other approaches than an exchange system. A resource based
economy. A gift economy. A subsistence economy.
=== Book IV: section 18
"18: Keynes restates the theory."
The exact words of the restatement can be found here:
Some obvious issues in the first paragraphs from there:
We have now reached a point where we can gather together the threads of our
argument. To begin with, it may be useful to make clear which elements in
the economic system we usually take as given, which are the independent
variables of our system and which are the dependent variables.
We take as given the existing skill and quantity of available labour, the
existing quality and quantity of available equipment, the existing
technique, the degree of competition, the tastes and habits of the consumer,
the disutility of different intensifies of labour and of the activities of
supervision and organisation, as well as the social structure including the
forces, other than our variables set forth below, which determine the
distribution of the national income. This does not mean that we assume these
factors to be constant; but merely that, in this place and context, we are
not considering or taking into account the effects and consequences of
changes in them.
Our independent variables are, in the first instance, the propensity to
consume, the schedule of the marginal efficiency of capital and the rate of
interest, though, as we have already seen, these are capable of further
Our dependent variables are the volume of employment and the national
income (or national dividend) measured in wage-units. ...
The schedule of the marginal efficiency of capital depends, however,
partly on the given factors and partly on the prospective yield of
capital-assets of different kinds; whilst the rate of interest depends
partly on the state of liquidity-preference (i.e. on the liquidity function)
and partly on the quantity of money measured in terms of wage-units. Thus
we can sometimes regard our ultimate independent variables as consisting of
(1) the three fundamental psychological factors, namely, the psychological
propensity to consume, the psychological attitude to liquidity and the
psychological expectation of future yield from capital-assets, (2) the
wage-unit as determined by the bargains reached between employers and
employed, and (3) the quantity of money as determined by the action of the
central bank; so that, if we take as given the factors specified above,
these variables determine the national income (or dividend) and the quantity
of employment. But these again would be capable of being subjected to
further analysis, and are not, so to speak, our ultimate atomic independent
On the second paragraph: People have preferences at what they work at. They
also learn and grow on the job as well as off it, and the internet is
speeding that. The pace of invention and innovation in our society is
accelerating exponentially, it seems, both as regard better materials and
designs, but also as regards better automation, robots, AI, computing, and
networking. So, even if Keynes' model may have been very useful in 1935, it
is certainly out of date now to ignore those things. Those issues of human
learning and technical change are now essential to future useful economic
Related, to show that point, from my wistful musing on a PhD in this: :-)
The other focal area for Rensselaer's department of economics is
technological change, the dynamic process at the root of economic growth.
The bulk of economic growth - 87.5% according to Nobelist Robert Solow's
(1957) initial estimates, stems from technological change: improvements in
efficiency and effectiveness of industry. And Solow's estimates do not even
correct for the "hedonic" price changes needed to account for improvements
in products' features and quality, nor for the development of new goods and
services. To understand how to achieve the kinds and amount of economic
growth we desire, we must understand technological change and its role in
the industries where it occurs.
On the fourth paragraph: By assuming that the volume of employment is a
dependent variable, Keynes' has assumed away anything interesting in terms
of other sorts of economic planning, like a more centrally planned Buddhist
Economics approach to full employment like EF Schumacher wrote about.
On the last paragraph there (I ellipsed one), it is clear that the entire
theory is resting on assumptions about "human nature" in a sense. About
things like whether demand by healthy users for goods and services is
limited or unlimited.
==== Book V: section 20
"We’ve said that employment ultimately comes from demand. So why should the
government promote investment instead of demand? It’s because investment
comes first. If you give people money to buy more (say) iPods, then first
all the existing iPods get sold. This raises the price, which makes Apple
richer but doesn’t help any employees — and Apple likes to save its money
much more than its employees do. Eventually they begin to run out of iPods
and start investing in additional factories to make more. And then those
factories hire people to work there, who spend their wages on other things.
It works, it’s just slow — if you want to get people employed quickly,
you’re better off starting with building the factories."
But, that assumes a few things. First, who gets the money first, as a sort
of gift from the goverment that creates the Kanban tokens? If you give it to
the banks or industry first, the distribution of social power is different
than if you give it to the citizens first.
Also, it seems like China these days can popup a new factory in weeks, or at
most months. Why can't people in the USA do that? Besides, if you build
capacity first, you can't be sure there is demand. People might prefer to
buy laptops instead of iPods. Or they might prefer to pay for services like
restaurant meals. If you believe in the free market, you should let the
citizens decide what they want to buy. Granted, in theory, the businesses
are guessing what people want and producing for that, but it still puts the
control more in the hands of the businesses than the citizens.
==== Book V: section 21
"How does money influence demand? Primarily thru the rate of interest, which
depends on liquidity preferences, marginal efficiencies, and investment
multipliers. But these all depend on other complicating factors."
I just can't see that. It sounds fancy, but when average people have money
in their hands, they spend it (up to a point of diminishing returns).
There may also be some sort of mental shift in at least three ways.
One is when people think they have enough to stop buying for themselves.
Another is when people think they have enough to give to help others.
Another is when people think they have enough to start thinking like an
==== Book VI: section 22
"Because these things go together, they’re sometimes mistaken as the cause,
but note that it’s the expected return which falls first, then interest
Just using this as an example of the qualitative modeling process that is
going on, focusing on cybernetic issues of delays, orderings of activities,
cause and effect, and so on. (And a bit of fuzzy logic in the formal Lotfi
Zadeh sense?) So much focus on what causes what. But, what if, ultimately,
they all cause each other? :-) This is where individual based modelling
could help, to study the system in operation, poke at it, and profile how it
responds in various ways to gain insight into it. Steve Bankes talks about
this at RAND (gaining insight from models, not so much using them to
directly predict what happens).
Just think about it. This really smart guy, John Maynard Kenyes, is
basically trying to do these simulations in his head, based on making some
assumption along the way, looking at a few paths with only one actor
standing in for a swarm of them, so, one "consumer", one "worker", one
"business sector", and so on, limited by what he can keep in his mind in
1935. We can do so much more now (not to underestimate what one mind can do,
but the computers can help, as basically a fancy blackboard).
Examples from physics:
"MyPhysicsLab – Physics Simulation with Java"
"List of Physics Games"
==== Book VI: section 22
So even lowering interest rates isn’t enough to recover from the crash. And
“it is not so easy to revive the marginal efficiency of capital, determined,
as it is, by the uncontrollable and disobedient psychology of the business
world. It is the return of confidence, to speak in ordinary language, which
is so insusceptible to control in an economy of individualistic capitalism.
This is the aspect of the slump which bankers and business men have been
right in emphasising, and which the economists who have put their faith in a
‘purely monetary’ remedy have underestimated.”
That psychology thing again... :-) And I agree. But such a difference from a
"Resource Based Economy" or a "Gift economy" or a "subsistence economy"
(even as those might have their own social psychological issues).
==== Book VI: section 22
"But there’s two kinds of overinvestment: disappointing investments, where
the investment would have made sense except the economy collapsed, and
genuine overinvestment, where the investment could never have made money.
It’s only the second kind that’s an actual waste of resources, and the
solution to it isn’t raising interest rates “which would probably deter some
useful investments and might further diminish the propensity to consume, but
in taking drastic steps, by redistributing incomes or otherwise, to
stimulate the propensity to consume.”"
I probably agree with the redistributing income, as a basic income. :-)
As an aside, from a resource perspective, the first part of this is
problematical in terms of saying what sorts of investments are a "waste of
resources". Capital lumps together the real physical tools and goods with
the imaginary fiat dollars (or even their gold equivalent, which are maybe
just thought to be important based on imaginary value for exchange, not real
value for use). Even if an investment pays back, negative externalities like
pollution might make it bad for society. Or if an investment does not
payback, positive externalities like jobs created or new ideas or cleaning
up pollution might make it good for society. The word "externality" is not
on that webpage at all.
Not sure what Keynes had to say about externalities?
Doing a Google search, came across:
"Negative Externalities and Dueling Economists"
"Keynes on cutting the payroll tax in a downturn"
I think negative externalities accrue when we disparage poor expert
consensus in a way that doesn't clearly lead to advocating for better expert
As for unearthing an old Keynes letter, I understand it may be fighting
fire with fire, but really, I think the economics and legal profession
should move away the prerational human tendency to want to derive policy
wisdom from interpreting the texts of ancestors. Let's leave that to
I'm more intrigued by the empirical work of folks like Romer and Barro
and others, than the dueling sacred texts of Keynes and Mises.
Also came across, from 1998:
"Keynes and the neoclassical synthesis: Einsteinian versus Newtonian
"This remarkable book offers a critical assessment of the Neoclassical
Synthesis, long regarded as the standard interpretation of Keynes. It offers
a fresh interpretation of Keynes, drawing an unusual distinction between
Einsteinian and Newtonian macroeconomics."
==== Book VI: section 22
Why does redistributing income work? Think about the dot-com bubble where
everyone was blowing money on useless fiber-optic cable. If venture
capitalists are spending all their money on useless cable, the solution is
to take their money away. Instead, you can give it to poor people, who will
use it to buy useful things like food and clothing.
What happens isn’t so much excessive investment as misdirected
investment. Everyone builds houses thinking they’ll all sell for lots and
lots, then they find they aren’t actually selling for so much and the
economy collapses. “We reach a condition where there is a shortage of
houses, but where nevertheless no one can afford to live in the houses that
Makes sense to me. But somehow I feel the issue must be deeper. It has to do
with control and democracy as well. In a way, people are not politically
free unless they are economically secure (and a basic income provides that).
There is something here about "utility". What is the some of successfully
met desires across society? You would think it would be higher if resources
and control were more evenly spread around than concentrated in a few
points. Unless, one might argue, the few concentration points were somehow
making better decisions than the masses, and were making good decisions on
behalf of the masses (like what products to make, or what jobs to create).
==== Book VI: section 22
"In short, increasing interest rates to kill booms “belongs to the species
of remedy which cures the disease by killing the patient.”"
Except I've heard a lot of talk about that in the past decade from the Fed,
worrying about "inflation". But they are not very Keynesian these days, are
==== Book VI: section 22
What would the world of the permanent boom look like? It’s conceivable that
it might lead not just to full employment, but full investment — a world
with so much plenty that you couldn’t expect to make a profit on any kind of
durable good. “Moreover, this situation might be reached comparatively
soon—say within twenty-five years or less. I must not be taken to deny this,
because I assert that a state of full investment in the strict sense has
never yet occurred, not even momentarily.”
So, that is moving to post-scarcity?
==== Book VI: section 22
"Others say the problem is that the country is so unequal that poor people
can’t spend enough. The solution, they propose, is redistributing money to
the poor to promote jobs."
Maybe a moral argument is enough for a basic income? We just want everyone
to have at least the basics? Even if it destroyed jobs, it might be the
right thing to do, morally.
==== Book VI: section 23
"The classical school — including Keynes in earlier years — grew up mocking
mercantilism (protectionism) as incoherent and absurd. But maybe it makes
some sense: Growth depends on the inducements to new investment. Investment
is either foreign or domestic. Domestic investment is encouraged by the
interest rate and foreign investment by the balance of trade. Thus, if you
ignore direct investment by the government (as people had), these are the
two things to be concerned about."
Domestic investment can be encouraged by people just wanting to do things.
:-) Like "Blue Origin" started by Jeff Bezos. :-)
Or Willow Garage:
Or any charitable foundation, for that matter.
Now, he was writing in 1935. But the existence of a large non-profit sector
shows that people will do things without a desire for profit. They may still
have to balance their books somehow, but they don't need to come out ahead
==== Book VI: section 23
"But the worst part of the international gold system is the way it sets
countries against one another. For a country could only keep its citizens
employed if it had gold, and the only way to get gold was by taking it from
another country (and thus throwing them out of work). “Never in history was
there a method devised of such efficacy for setting each country’s advantage
at variance with its neighbours’!”"
Interesting. Another kanban issues. The economy can't work because they
don't have enough officially produced kanban tokens with widespread
acceptance to make the stigmergic market operate.
"Kanban is a signaling system to trigger action. As its name suggests,
kanban historically uses cards to signal the need for an item. However,
other devices such as plastic markers (kanban squares) or balls (often golf
balls) or an empty part-transport trolley or floor location can also be used
to trigger the movement, production, or supply of a unit in a factory. It
was out of a need to maintain the level of improvements that the kanban
system was devised by Toyota. Kanban became an effective tool to support the
running of the production system as a whole. In addition, it proved to be an
excellent way for promoting improvements because reducing the number of
kanban in circulation highlighted problem areas."
What is the difference between golf balls and gold coins in practice? Other
than gold coins are harder to counterfeit than golf balls? That's the
difference between the gold standard and fiat dollars. I'll go this far.
There is not difference between fiat dollars and those kanban golf balls.
They are the same thing, used for the same purpose. And you can build a
digital factory control system that uses digital tokens instead of real
ones, just like we can build a digital banking system that moves virtual
dollars around instead of paper ones.
More from wikipedia:
Many manufacturers have implemented electronic kanban systems. Electronic
kanban systems, or E-Kanban systems, help to eliminate common problems such
as manual entry errors and lost cards. E-Kanban systems can be integrated
into enterprise resource planning (ERP) systems. Integrating E-Kanban
systems into ERP systems allows for real-time demand signaling across the
supply chain and improved visibility. Data pulled from E-Kanban systems can
be used to optimize inventory levels by better tracking supplier lead and
As it says there, "reducing the number of kanban in circulation highlighted
problem areas". Is that what happens in a downturn? I'm not sure how that
information is used in kanban systems.
More from Wikipedia:
An important determinant of the success of production scheduling based on
"pushing" the demand is the quality of the demand forecast which can receive
such "push". Kanban, by contrast, is part of an approach of receiving the
"pull" from the demand. Therefore the supply, or production is determined
according to the actual demand of the customers. In contexts where supply
time is lengthy and demand is difficult to forecast, the best one can do is
to respond quickly to observed demand. This is exactly what a kanban system
can help: it is used as a demand signal which immediately propagates through
the supply chain. This can be used to ensure that intermediate stocks held
in the supply chain are better managed, usually smaller. Where the supply
response cannot be quick enough to meet actual demand fluctuations, causing
significant lost sales, then stock building may be deemed as appropriate
which can be achieved by issuing more kanban.
Centrally planned economies may focus on push (from forecasts). Market
economies focus on pull from demand indicated by willingness to spend fiat
dollars for some item (which then pulls along the entire supply chain all
the way back to raw material extraction). So, when someone goes to the store
and buys an iPod, that person is effectively pulling on a really long string
which branches endlessly into all areas of the economy, and that pull is
transmitted by the flow of the fiat dollars in exchange for goods and
services throughout every interface between companies in the economic
system. (And, even internally, companies may have divisions that pay each
other, too, as an internal kanban system.)
But, this is why Keynes is wrong to focus on giving the dollars to the
companies first to build production, and then hire workers, so the workers
then have wages to buy the production. Again: "In contexts where supply time
is lengthy and demand is difficult to forecast, the best one can do is to
respond quickly to observed demand. This is exactly what a kanban system can
help: it is used as a demand signal which immediately propagates through the
The problem is seeing the gold coin or fiat dollar as "wealth" as opposed to
just a signal. And the issue is then, how do you give people permission to
transmit signals in a reasonable way given other constraints on the system
(resources) and an expectation about human nature if humans need to be
motivated to work inside the system?
But with robots and AI and better materials and better design, less and less
do people need to be working inside the economic machine.
==== Book VI: section 23
"It is convenient to mention at this point the strange, unduly neglected
prophet Silvio Gesell (1862-1930), whose work contains flashes of deep
insight and who only just failed to reach down to the essence of the matter.
In the post-war years his devotees bombarded me with copies of his works;
yet, owing to certain palpable defects in the argument, I entirely failed to
discover their merit. As is often the case with imperfectly analysed
intuitions, their significance only became apparent after I had reached my
own conclusions in my own way. Meanwhile, like other academic economists, I
treated his profoundly original strivings as being no better than those of a
crank. Since few of the readers of this book are likely to be well
acquainted with the significance of Gesell, I will give to him what would be
otherwise a disproportionate space."
Keynes also discusses Bernard Mandeville’s incredible book, The Fable of the
Bees. This incredible work of economic thought described the division of
labor and the invisible hand in 1705, a full seventy years before Adam
Smith. And, Keynes points out, it’s largely about the paradox of thrift —
centuries before Keynes! It’s basically been written out of economic
history, in part, no doubt, because it was written in the form of a
scandalous satirical epic poem. Indeed, it so scandalized its readers at the
time that it was “convicted as a nuisance by the grand jury of Middlesex in
1723, which stands out in the history of the moral sciences for its
Maybe both those comments relate to me on post-scarcity with my satire? :-)
I forget who said this: "Sometimes you need to go a long way out of your way
to go a few steps correctly". Pogo?
Probably something I read in my class yearbook over two decades ago. Anyway,
this essay is all those wrong steps. :-) But this work is freely licensed
(see the end) so feel free to use it to help go a few steps correctly. :-)
If I were to write it over, I'd try to be more upbeat about how PU was
making steady progress towards a better future (from where it and our
society was coming from). I hope someone can do that, and perhaps just show
this essay is perhaps a dark shadow from the past.
=== Book VI: section 23
Finally we come to Major Douglas, who led the unorthodox Social Credit
movement in the UK: ...
From that chapter by Keynes:
"Since the war there has been a spate of heretical theories of
under-consumption, of which those of Major Douglas are the most famous. The
strength of Major Douglas’s advocacy has, of course, largely depended on
orthodoxy having no valid reply to much of his destructive criticism. On the
other hand, the detail of his diagnosis, in particular the so-called A + B
theorem, includes much mere mystification. If Major Douglas had limited his
B-items to the financial provisions made by entrepreneurs to which no
current expenditure on replacements and renewals corresponds, he would be
nearer the truth. But even in that case it is necessary to allow for the
possibility of these provisions being offset by new investment in other
directions as well as by increased expenditure on consumption. Major Douglas
is entitled to claim, as against some of his orthodox adversaries, that he
at least has not been wholly oblivious of the outstanding problem of our
economic system. Yet he has scarcely established an equal claim to rank — a
private, perhaps, but not a major in the brave army of heretics — with
Mandeville, Malthus, Gesell and Hobson, who, following their intuitions,
have preferred to see the truth obscurely and imperfectly rather than to
maintain error, reached indeed with clearness and consistency and by easy
logic, but on hypotheses inappropriate to the facts."
Social Credit is a form of "basic income". It is interesting to see Keynes
dismiss it one of the originators of the idea.
According to Douglas, the true purpose of production is consumption, and
production must serve the genuine, freely expressed interests of consumers.
Each citizen is to have a beneficial, not direct, inheritance in the
communal capital conferred by complete and dynamic access to the fruits of
industry assured by the National Dividend and Compensated Price.
Consumers, fully provided with adequate purchasing power, will establish the
policy of production through exercise of their monetary vote. In this
view, the term economic democracy does not mean worker control of
industry. Removing the policy of production from banking institutions,
government, and industry, Social Credit envisages an "aristocracy of
producers, serving and accredited by a democracy of consumers." Assuming
the only safe place for power is in many hands, Social Credit is a
distributive philosophy, and its policy is to disperse power to individuals.
Social Credit philosophy is best summed by Douglas when he said, “Systems
were made for men, and not men for systems, and the interest of man which is
self-development, is above all systems, whether theological, political or
The policy proposals of Social Credit attracted widespread interest in
the decades between the world wars of the twentieth century because of their
relevance to economic conditions of the time. Douglas called attention to
the excess of production capacity over consumer purchasing power, an
observation that was also made by John Maynard Keynes in his book, The
General Theory of Employment, Interest and Money. While Douglas shared
with Keynes some criticisms of the monetary and banking systems, his unique
remedies were disputed and even rejected by most economists and bankers of
the time. Remnants of Social Credit still exist within Social Credit Parties
throughout the world, but not in the purest form originally advanced by
Major C. H. Douglas. Likewise, the Keynesian Revolution of the 1940s and
1950s was eventually eroded by neoclassical economists and banking
interests. Now as Keynes' ideas seem the most generally accepted response to
the Financial crisis of 2007–2009, modern analysts like Richard C. Cook
argue the need for a renewed interest in the long dormant ideas of Major
Although, that still misses ideas from EF Schumacher, Charles Fourier, and
Bob Black that the nature of the work itself means a lot to the worker who
spends much of their life doing it. Making worktime fun, social, a growth
experience, and joyful is a big deal. One could even invert the paradigm --
what a worker does outside of work is only to prepare him or her to be able
to work. It is the work experience that matters to a person's quality of
And now I see that Douglas said the same thing I worked out almost a century
later in relation to kanban:
Douglas also criticized classical economics because it was based upon a
barter economy, whereas the modern economy is a monetary one. To the
classical economist, money is a medium of exchange. Douglas argued that this
may have once been the case when the majority of wealth was produced by
individuals who subsequently exchanged it with each other. But in modern
economies, division of labour splits production into multiple processes, and
wealth is produced by people working in association with each other. For
instance, an automobile worker does not produce any wealth (i.e., the
automobile) by himself, but only in conjunction with other auto workers, the
producers of roads, gasoline, insurance etc.
In this view, wealth is a pool upon which people can draw, and the
efficiency gained by individuals cooperating in the productive process is
known as the “unearned increment of association” – historic accumulations of
which constitute what Douglas called the cultural heritage. The means of
drawing upon this pool are the tickets distributed by the banking system.
Initially, money originated from the productive system, when cattle
owners punched leather discs which represented a head of cattle. These discs
could then be exchanged for corn, and the corn producers could then exchange
the disc for a head of cattle at a later date. The word “pecuniary” comes
from the Latin “pecus,” meaning "cattle". Today, the productive system
and the distributive/monetary system are two separate entities. Douglas
demonstrated that loans create deposits, and presented mathematical proof in
his book Social Credit. Bank credit comprises the vast majority of
money, and is created every time a bank makes a loan. Douglas was also
one of the first to understand the creditary nature of money. The word
credit derives from the Latin "credere", meaning "to believe". "The
essential quality of money, therefore, is that a man shall believe that he
can get what he wants by the aid of it."
Douglas believed that money should not be regarded as a commodity but
rather as a ticket, a means of distribution of production "There are two
sides to this question of a ticket representing something that we can call,
if we like, a value. There is the ticket itself – the money which forms the
thing we call 'effective demand' – and there is something we call a price
opposite to it." Money is effective demand, and the means of reclaiming
that money are prices and taxes. As real capital replaces labour in the
process of modernization, money should become increasingly an instrument of
Douglas also claimed the problem of production, or scarcity, had long
been solved. The new problem was one of distribution. However; so long as
orthodox economics makes scarcity a value, banks will continue to believe
that they are creating value for the money they produce by making it
scarce. Douglas criticized the banking system on two counts:
1. for being a form of government which has been centralizing its power
for centuries, and
2. for claiming ownership to the money they create.
The former Douglas identified as being anti-social in policy. The latter
he claimed was equivalent to claiming ownership of the nation. Money,
Douglas claimed, was merely an abstract representation of the real credit of
the community, which is the ability of the community to deliver goods and
services, when, and where they are required.
All the same stuff I've been thinking, but I have the benefit of reading
about all this from many sources, and even maybe forgetting some and
rethinking it and then reading it again. :-) And I've seen that page before
but not read it all.
But those were criticism I just made of Keynes. Who gets the money that is
Douglas's A+B theorem sounds a little like what I wrote about (I think on
the OM list) where, rather than what he did, I broke all payments into two
categories -- for "labor" and for "rent". I wrote on the p2p list too:
And it made it on the blog:
Other; I could not find the exact one I was thinking of:
And somewhere I talked about workers essentially "renting" their bodies and
minds, so labor is a form of rent too, except a consciousness goes with that
renting for the worker (that might not like the work), but no consciousness
goes for the capitalist (or not much, they may pay attention to an property
they own occasionally).
Douglas had written:
"A factory or other productive organization has, besides its economic
function as a producer of goods, a financial aspect—it may be regarded on
the one hand as a device for the distribution of purchasing-power to
individuals through the media of wages, salaries, and dividends; and on the
other hand as a manufactory of prices – financial values. From this
standpoint, its payments may be divided into two groups:
Group A - All payments made to individuals (wages, salaries, and
Group B - All payments made to other organizations (raw materials, bank
charges, and other external costs).
What I had said elsewhere was to break payments into two things at each
level. So, you have a paint factory. What part of the money goes to labor
and what part to rent? Well, directly, you have labor costs. And you may pay
rent for the land the factory is on. But, you buy things like machinery to
mix paint. Well, that machinery cost then goes into labor and rent too.
There is the labor to put it together, and the rent for the land that
factory is on, or the rent on some patent that is used. But the machine is
made from materials or other parts, which similarly can be broken down into
rent and labor. Then one can talk about the equity of this. Even for labor
it is not clear -- why should one laborer get more than another? There may
be justifications, but they are just that, justifications, and they depend
on assumptions and values. As to rent, again, how you feel about it depends
on assumptions and values. What I don't know for sure is, looking at
anything I have purchase, what part of the price went to labor and what part
went to rent? If I knew that, I might buy differently (to promote labor).
Paying for labor may be justified. But rent is essentially just paying for
artificial scarcity, to someone not adding much to the product. Note, what
is called "rent" for "renting" a building may not actually be all "rent" in
this sense, since the building has upkeep. And then one can talk about
"risk" versus "rent", and whether risk justifies rent somehow.
Actually, if I had to pick a model, maybe it would be better to say
everything costs because of rent, not everything costs because of labor. :-)
Because of saying a laborer is renting their body and mind and consciousness.
The social credit issue is, by what reasoning are various rents arrived at
and considered valid? And when can the state take part of the rent for its
own purposes or to redistribute it? What is the state's ownership role when
someone rents a piece of land they claim to own? What is the state's
ownership role when a person rents their body, that they can claim some of
the income as taxes?
Still, neither capture the idea that "ownership" itself might be taxable.
:-) So, if you own some land (or some cash) and you are not renting it and
so have no income, does the state still have a right to nibble away at it
with property taxes? I'd suggest, from what I agree with Keynes on, that
yes, it's probably a good idea, to help keep those assets moving through the
economy and prevent long-term hoarding. Although, is hoarding currency
different than hoarding land? Currency demurrage is related to this.
So, maybe government is charging "rent" on the idea of "ownership" when it
Then should workers have to pay a "head tax", because they rent their bodies
and minds? Somehow, that seems wrong. Maybe it could be considered covered
in the basic income? :-)
=== Book VI: section 24
"The two great economic problems are unemployment and inequality. We have
addressed the first, but what are its implications of the second? Inequality
has been addressed somewhat by government redistribution, but some are
hesitant to go further because they believe that growth is promoted by
savings and so taking away the savings of the rich will retard growth. We
have seen that it’s quite the opposite — that redistribution, by increasing
effective demand, promotes growth. “One of the chief social justifications
of great inequality of wealth is, therefore, removed.”"
So, more support for a basic income.
=== Book VI: section 24
"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 today 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 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."
So, maybe a way forward to post-scarcity? From 1935?
Still, even if interest is at zero, if you borrow, you must pay back. If you
own the money, you can spend it without thoughts of repayment. So, taxation
to keep money circulating is very different than expecting people to borrow.
It just emotionally is a different issue. Even as, perhaps, logically it
might be the same. But when you borrow, you generally have to sign
contracts, and those contracts may limit how you can spend the money. So,
there are deeper issues here about control.
=== Book VI: section 24
"Thus we might aim in practice (there being nothing in this which is
unattainable) at an increase in the volume of capital until it ceases to be
scarce, so that the functionless investor will no longer receive a bonus;
and at a scheme of direct taxation which allows the intelligence and
determination and executive skill of the financier, the entrepreneur et hoc
genus omen (who are certainly so fond of their craft that their labour could
be obtained much cheaper than at present), to be harnessed to the service of
the community on reasonable terms of reward."
But see there, he can't just allow for taxes and giving it to citizens to
spend as they wish. It has to be that the state purchase the services of
someone for some state-decided end. The magic of the market is that people
decide what they want from what's available, and other try to guess what
people will want (or, sadly, through advertising increase people's wants
perhaps unhealthily). So, Keynes is implicitly arguing "the state knows
best" here as far as how to spend that money that is taxed (or printed).
Giving it to the citizens directly seems more democratic.
Is there perhaps an undue fear from this comment?
A democracy cannot survive as a permanent form of government. It can last
only until its citizens discover that they can vote themselves largesse from
the public treasury. From that moment on, the majority (who vote) will vote
for those candidates promising the greatest benefits from the public purse,
with the result that a democracy will always collapse from loose fiscal
policies, always followed by a dictatorship. ... (Lord Thomas MacCauley, May
But, is that really true? That was said almost a century before Keynes. And
Keynes seems to actively rebut that ideas. What Keynes is suggesting is that
prosperity comes exactly from such votes. Neoliberalism, giving tax cuts to
the rich, has proved disastrous, compared to the 91% marginal tax rate the
USA had under President Franklin Roosevelt.
So, the facts and Keynes both seem to dispute Lord Thomas MacCauley and his
Neoliberal successors like Alan Greenspan and even our current mainstream
financial leaders who draw from an Ayn Rand-like form of Propertarian
=== Book VI: section 24
"It may turn out that the propensity to consume will be so easily
strengthened by the effects of a falling rate of interest, that full
employment can be reached with a rate of accumulation little greater than at
present. In this event a scheme for the higher taxation of large incomes and
inheritances might be open to the objection that it would lead to full
employment with a rate of accumulation which was reduced considerably below
the current level." I must not be supposed to deny the possibility, or even
the probability, of this outcome. For in such matters it is rash to predict
how the average man will react to a changed environment.
I see more clearly now. Keynes needs to focus on "full employment" because,
unlike Bob Black, he can't accept the value of "full unemployment" which
would be possible with a basic income and extensive automation or,
alternatively, restructuring work to make it into play or "hard fun".
There is some sort of "work ethic" at the core there. This sense that income
has to be linked to jobs. Maybe that is another aspect of rejecting the idea
of giving government printed money (well, there was none on the gold
standard) directly to citizens? Giving it to banks to loan to companies to
then hire workers fits with this model of an ideal that people need to work
to earn a right to consume -- so, a scarcity model. And again, a likely
assumption that people will not do anything useful without pay. Except then,
why do people raise children without pay? That has got to be a more
demanding task than many others.
But, at least, he admits he does not know.
But here is a paradox. Many of the wealthy people he talks about have no
need to work their entire lives, even with high taxes, because they have so
much money. Then why do they work so hard to have more money? Even if it is
for their children, why do they have children and then do so much work on
their behalf? (Well, that was before reliable birth control, true.) Anyway,
even then, there were examples of the rich who worked, and examples of the
priesthood who worked for not much material gain, and probably artists and
so on. So, he did not want to see that, maybe?
=== Book VI: section 24
Now the State will still have to guide things; it seems unlikely that just
controlling interest rates will be enough to ensure this utopian state of
affairs. Instead, it might turn out “a somewhat comprehensive socialisation
of investment will prove the only means of securing an approximation to full
employment; though this need not exclude all manner of compromises and of
devices by which public authority will co-operate with private initiative.”
I really see how far we have fallen (a point Ryan has made. :-). I now
understand his point better.
I agree, even though I'd rather have someone beyond Keynes, at least give us
Keynes back instead of neoliberal free market fundamentalists like Greenspan
and a lot of US "fiscal conservatives" at this point.
What a better world this would have been the last thirty years. And then we
could have built beyond that on our own via a gift economy and peer
production etc. Still, at least we got the "socialist" internet. That is
exactly the kind of thing Keynes suggested. But perhaps today it could never
have been invented? Well, we're getting military robots now out of our
military socialist enterprise (DARPA) maybe with some dual use aspects.
Should I be happy about that? :-)
=== Book VI: section 24
""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
Again, Keynes is not getting how a basic income would be more compatible
with a free market ideal than state-decided public works. :-) Not that I am
against public works if they are needed.
=== Book VI: section 24
"For if effective demand is deficient, not only is the public scandal of
wasted resources intolerable, but the individual enterpriser who seeks to
bring these resources into action is operating with the odds loaded against
him. The game of hazard which he plays is furnished with many zeros, so that
the players as a whole will lose if they have the energy and hope to deal
all the cards. Hitherto the increment of the world’s wealth has fallen short
of the aggregate of positive individual savings; and the difference has been
made up by the losses of those whose courage and initiative have not been
supplemented by exceptional skill or unusual good fortune. But if effective
demand is adequate, average skill and average good fortune will be enough."
"Deficient" effective demand means "limited" demand. He sees that as the
problem. I see it as part of the solution, in the context of increasing
automation. :-) Abundance happens when supply exceeds demand (without
unaccounted for negative externalities).
On his point in the second half, tell me about it. :-)
=== Book VI: section 24
"At the present moment people are unusually expectant of a more
fundamental diagnosis; more particularly ready to receive it; eager to try
it out, if it should be even plausible. But apart from this contemporary
mood, the ideas of economists and political philosophers, both when they are
right and when they are wrong, are more powerful than is commonly
understood. Indeed the world is ruled by little else. 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."
Yes, I have to agree. I can see how the ideology, or "mythology" as I call
it, after Conceptual Guerilla:
"The Mythology of Wealth"
Mythology is indeed a powerful thing.
General issue: it feels to me like Keynes assumes nothing significant gets
done unless people are paid to do it. So, workers need to get paid to make
things. Entrepreneurs need to get paid to spend the money they control to
buy equipment and arrange for workers to use it with raw materials. So, for
example, a new bridge for a community might not get built unless the
community is taxed and a company is paid to hire workers and build the bridge.
But, historically, like in Peru, communities will work together to build
communal resources like bridges, with no money changing hands. This is a
sort of P2P enterprise as a gift to the commons. Then everyone can go over
the common bridge. Example:
"Each year in June, the people of the comunidad campesina of Huinchiri,
along with villagers from three other nearby communities, rebuild a
suspension bridge across the canyon of the upper Río Apurimac. The bridge is
a keshwa chaca made of ropes hand woven of qqoya grass, a type of Andean
bunchgrass. A steel girder bridge crosses the canyon a short distance
upstream from the keshwa chaca, so it is not necessary that this rope bridge
be rebuilt for any present-day transportation purposes. And yet the Quechua
people continue to build the bridge annually, as apparently they have done
since Inka times. It is their custom, and by maintaining the bridge they
honor their ancestors and Pachamama. "
It makes me realize that there is, essentially, a religious aspect of P2P
perhaps at some point. An honoring of some spirit, of a god, of ancestors,
of the community, of togetherness, of the commons, or something like that.
There is also a blindness in the writing, noted above, about the issue of
who gets the money first: workers or companies doing public works, average
citizens as a basic income, banks to loan out, or perhaps companies through
direct subsidies of some sort (job creation credits or wage subsidies).
From the Wikipedia article on Keynes:
Joseph Schumpeter was an economist of the same age as Keynes and one of his
main rivals. He was among the first reviewers to argue that Keynes's General
Theory was not a general theory, but was in fact a special case. He said
the work expressed "the attitude of a decaying civilisation". After Keynes's
death Schumpeter wrote a brief biographical piece called Keynes the
Economist - on a personal level he was very positive about Keynes as a man;
praising his pleasant nature, courtesy and kindness. He assessed some of
Keynes biographical and editorial work as among the best he'd ever seen. Yet
Schumpeter remained critical about Keynes's economics, linking Keynes's
childlessness to what Schumpeter saw as an essentially short term view. He
considered Keynes to have a kind of unconscious patriotism that caused him
to fail to understand the problems of other nations. For Schumpeter:
"Practical Keynesianism is a seedling which cannot be transplanted into
foreign soil: it dies there and become poisonous as it dies."
I think there is some truth to that, reading the above summary, and seeing
Keynes's disagreement with Douglas and Social Credit (a basic income). He
saw very far, but not that far all the way to abundance. He remained mired
in scarcity, in part because, as above, his starting assumptions were to
exclude both exponentially increasing innovation and healthy humans limiting
their own demands. Still, he clearly saw something new was possible with
"the disappearance of its rentier aspect".
So, like his comments, but consider as me applying them to Keynes: "It is
convenient to mention at this point the strange, unduly neglected prophet
Silvio Gesell (1862-1930), whose work contains flashes of deep insight and
who only just failed to reach down to the essence of the matter."
Keynes got close, but even though he kept talking about limited demand as
the big problem, never saw that it was actually the *solution* to creating
affluence, if coupled with exponentially increasing technological capacity.
Maybe he might have gotten that if he had read this:
"The Original Affluent Society" by Marshall Sahlins
"Hunter-gatherers consume less energy per capita per year than any other
group of human beings. Yet when you come to examine it the original affluent
society was none other than the hunter's - in which all the people's
material wants were easily satisfied. To accept that hunters are affluent is
therefore to recognise that the present human condition of man slaving to
bridge the gap between his unlimited wants and his insufficient means is a
tragedy of modern times."
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