Krugman and Keynes

In his column this morning, Paul Krugman, my former colleague at CUNY—how could I make that up?—had this to say about issues that have mattered a lot to me over many years now. I admire Krugman, of course, but this is bullshit, pure and simple. Not the Harry Frankfurt kind, which requires willful ignorance of the facts, but the everyday kind, which requires mere ignorance of the historical record.

“Don’t say that redistribution is inherently wrong. Even if high incomes perfectly reflected productivity, market outcomes aren’t the same as moral justification. And given the reality that wealth often reflects either luck or power, there’s a strong case to be made for collecting some of that wealth in taxes and using it to make society as a whole stronger, as long as it doesn’t destroy the incentive to keep creating more wealth.”

The “incentive to keep creating more wealth”? Fuck me, we used to call that the profit motive. Marx called it the formula for capital, whereby the ownership of goods is only a means to the expansion of wealth in the abstract, money itself.

Keynes, bless his heart, called it “a somewhat disgusting morbidity.”

He was right. Why don’t we read him for that line? Everybody wants to say, well, in “Economic Possibilities for Our Grandchildren,” an essay of 1930, he really got it wrong, we’re working harder and longer than ever. Yeah, yeah, he made some predictions, based on empirical premises, which didn’t materialize—he figured we’d be working fewer hours and making more money per hour by now.

But his purpose in writing that signature essay was to detach us from our affection for the entrepreneurs among us, those go-getters with great ambition organized by their desire to get rich. Enough already with these people, Keynes said, they’re sick. Let’s get over their affliction.   Here’s how he put it.

“When the accumulation of wealth is no longer of high social importance, there will be a great change in the code of morals. We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues. We shall be able to afford to dare to assess the money-motive at its true value. The love of money as a possession . . . will be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialist in mental disease.”

18 months later, Keynes wrote a piece for The New Republic, “The Dilemma of Modern Socialism.” Here he claimed that the “ideal society”—socialism—was already legible in the historical circumstances of the Great Depression. Again he was right, and again, we’ve ignored this dimension of his thinking. Listen closely now, this is the Keynes who has just finished The Treatise on Money (1930) and is preparing to write The General Theory (1936). The supposed opposites of “ought” and “is” come together on this site.

“It happens that the most pressing reforms which are economically sound do not, as perhaps they did in earlier days, point away from the ideal [of socialism]. On the contrary, they point toward it. [Ought=Is] I am convinced that those things which are urgently called for on practical grounds, such as the central control of investment and the distribution of income in such a way as to provide purchasing power for the enormous potential output of modern productive technique, will also tend to produce a better kind of society on ideal grounds.”

Now, why was Keynes thinking this way in 1932, when everything had hit bottom? How had “ought” and “is” finally converged—that is, how had the ethical principle of socialism and the historical circumstance of capitalism intersected? Look at The Treatise on Money, volume 2, pp. 190-194. That’s where Keynes, using data from the US in the 1920s, noted the huge discrepancy between rising corporate profits, zero net investment, and soaring labor productivity.

That’s when he realized the profit motive was an anachronism.   He understood, in 1930, that the “incentive to create wealth” was morbid, because it was unnecessary. Expanded goods production no longer required saving, investment, deferral of consumption, delay of gratification, whatever you want to call abstention from this life in the name of the next.

Paul Krugman is a hero to many of us because he fights the good fight against the idiocies of economic theory and practice in our time. But he is now behind the times because he hasn’t yet caught up with Keynes.

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One response to “Krugman and Keynes

  1. Pingback: When will Krugman catch up with Keynes? | LARS P. SYLL

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