The General Theory of Employment, Interest and Money

by John Maynard Keynes
FOR those interested in the evolution of President Roosevelt’s tax philosophy — and who is n’t? — John Maynard Keynes’s new volume should be required reading. It will come as a shock to many to learn that Mr. Keynes has gone over to the so-called ‘heretic’ economists.
[Harcourt, Brace, $2.75]
IN the intervals of a busy public life, Mr. Keynes has been tentatively reaching out for an economic theory to explain our economic maladjustment. With dazzling insouciance he has gone from ‘position’ to ‘position.’ A new one has always seemed to promise the definitive position.
One still hears debates on his five-year-old double-decker Treatise on Money. But the excitement over its successor will be even greater, for in this volume the theory is born at last - and shatteringly. Keynes has thrown overboard as outmoded cargo the entire abracadabra of the classical tradition in which he was trained, and lined up with heretics upon whom the classicists have been wont to look disparagingly. In Mr. Keynes’s new work, Mandeville, J. A. Hobson, and Silvio Gesel come into their own, under-consumptionists all; though, like Bottom, they would find themselves translated.
The matter in hand is thrift. In the good old days when it was a crime to sell the United States short, I recall that the old virtue of individual abstinence used to come in for much castigation. Personal thrift was the enemy of the New Era. One must buy so that the wheels of industry might keep on circulating. Even the cautious Owen D. Young lent his influential voice to the chorus, and pleaded for what he vaguely called moderate thrift. Now, after the blizzard, as those who followed the advice are busy boondoggling, we learn that the corporations should have been equally thriftless and then all would have been well.
This is the philosophy, it will be seen, upon which Mr. Roosevelt acted in calling for a tax on corporate income which is not distributed in dividends. The object is, of course, to raise revenue. But the social aim is concurrently to drive money out of savings into spendable income. To that extent it applies the Keynes doctrines. But to allow the argument to stay there would be to leave Mr. Keynes in midair — and the economic system still in a state of anarchy. To Mr. Keynes, investing is as important as spending, and he breaks new ground in denying an antithetical relation between the two — i.e., that investing is merely a function of abstained spending. An increase in spending, he says, makes for new investing, and vice versa; and he would expand both. But there would still be trouble, and, to avoid it, Mr. Keynes would synchronize the ‘propensity to consume with the inducement to invest.’
How is the plan of action to be realized? By the method that Mr. Nock so heartily detests—state action. The state must control the supply of money and use its tax policy with an eye on ‘sharing the income.’ For all practical purposes the former control has been achieved through the Banking Act of 1935, and tax policy is becoming as much redistributist as fiscal. Next in the Keynesian order of state business is the maintenance of a rate of interest sufficiently below the profit rate to impel entrepreneurs to borrow from investors. This, too, has been managed under the New Deal. Nevertheless, as the New Deal goes to the polls after four years, conditions of full employment have not been attained by a long shot. There is a third weapon, and with it the Keynesian roster of state weapons concludes. This is the socialization of investment. One would invest one’s savings, that is to say, through the government in whatever enterprises the government thought suitable.
It does not require much imagination to appreciate that to establish such a Capital Issues Board in Washington would be to open a Pandora’s box of non-economic problems. Think of the lobby it would call into being. The tariff is perhaps a precedent. As Mr. Hoover once said, the tariff has always been a local problem, never the national problem that it ought to be. The new problem would be worse than local — it would be a nation-wide tug of war. The warfare that would be invited in the anterooms of a Capital Issues Board would be even more bitter than the warfare that will presently break out in the cloisters over Mr. Keynes’s book. Competitors would naturally fight against the grant of permission to float issues in favor of enterprises that wanted to extend their capacity. Professor Sumner H. Slichter once discussed socialization of investment. His chief objection, as I recall, was that those issues which promised the greatest savings in cost and which would thus create the most formidable and successful competition — in other words, the best and most deserving issues — would naturally be the ones most vigorously opposed. The state even in its moments of greatest omnipotence may be merely a tool of the most powerful pressure group.
Mr. Keynes has given the world a book which is bound to create a cleavage among his lay as well as his economist readers for reasons other than those that lie in the validity of his equations.