KEYNES’S VIEWS ON FREE CAPITALISM

John Maynard Keynes is a strong advocate of this proposal.

The writings of the great economist John Maynard Keynes very strongly support the changes proposed by Free Capitalism. It is not a coincidence.

Keynes lived in times of great economic turbulence and the emergence of new economic thoughts, socialism and the Austrian School of economics to name a few. His better understanding of the economic conditions of his time, as has been borne out by three quarters of a century of intellectual dominance of his ideas, gave great power to his ideas which were also matched by the results produce by them. His ideas lead to the establishment of a new branch of Economics – Macro economics. He was able to provide the logical transition from Classical Economics to Keynesian Economics.

Keynes was able to see the economic realities as they had emerged over the centuries and was able to point out the reasons why the classical economic theories failed to address economic problems of his time. In this chapter we are looking at his understanding of the times ahead of him as expressed in his writings. It is no surprise that he saw the emerging trends and the need for changes in the basic economic configuration under capitalism.

The great unemployment problem, the great depression, was a unique event of his time which in fact was a manifestation on a massive scale of greater flaws of the economic system of the time. The problems we are facing today were becoming visible in Keynes time and that is the reason for the proposals in this book to be so much in line with Keynes’s vision for the future. Now we feel that he knew the future quite well.

Chapters 23 and 24 of his mighty work, The General Theory of Employment, Interest, and Money devote a significant amount of space on the issues addressed by Free Capitalism.

In Chapter 23 of the book, Keynes discusses and agrees to a great extent with the economist Silvio Gesell, who, in the earlier part of the twentieth century, tried to trim the powers of money. Free Capitalism shares the basic objective of Silvio Gesell’s effort. The main thrust of Silvio Gesell’s work was adding a carrying cost to money so that it could not be hoarded; thus stripping money of the power to demand interest.

The following excerpts from Chapter 23, “Notes on Mercantilism, the Usury Laws, Stamped Money and Theories of Under-Consumption,” of The General Theory of Employment, Interest, and Money, are Keynes’s views about Silvio Gesell and his work.

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.

The first section of his standard work was published in 1906 at Les Hauts Geneveys, Switzerland, under the title Die Verwirklichung des Rechtes auf dem vollen Arbeitsertrag, and the second section in 1911 at Berlin under the title Die neue Lehre vom Zins. The two together were published in Berlin and in Switzerland during the war (1916) and reached a sixth edition during his lifetime under the title Die natürliche Wirtschaftsordnung durch Freiland und Freigeld, the English version (translated by Mr. Philip Pye) being called The Natural Economic Order.

The purpose of the book as a whole may be described as the establishment of an anti-Marxian socialism, a reaction against laissez-faire built on theoretical foundations totally unlike those of Marx in being based on a repudiation instead of on an acceptance of the classical hypotheses, and on an unfettering of competition instead of its abolition. I believe that the future will learn more from the spirit of Gesell than from that of Marx. The preface to The Natural Economic Order will indicate to the reader, if he will refer to it, the moral quality of Gesell. The answer to Marxism is, I think, to be found along the lines of this preface.

Gesell’s specific contribution to the theory of money and interest is as follows. In the first place, he distinguishes clearly between the rate of interest and the marginal efficiency of capital, and he argues that it is the rate of interest which sets a limit to the rate of growth of real capital. Next, he points out that the rate of interest is a purely monetary phenomenon and that the peculiarity of money, from which flows the significance of the money rate of interest, lies in the fact that its ownership as a means of storing wealth involves the holder in negligible carrying charges, and that forms of wealth, such as stocks of commodities which do involve carrying charges, in fact yield a return because of the standard set by money. He cites the comparative stability of the rate of interest throughout the ages as evidence that it cannot depend on purely physical characters, inasmuch as the variation of the latter from one epoch to another must have been incalculably greater than the observed changes in the rate of interest; i.e. (in my terminology) the rate of interest, which depends on constant psychological characters, has remained stable, whilst the widely fluctuating characters, which primarily determine the schedule of the marginal efficiency of capital, have determined not the rate of interest but the rate at which the (more or less) given rate of interest allows the stock of real capital to grow.

It is clear from the above passage that Keynes had great respect for Silvio Gesell and agreed with the substance of his work. Keynes also recognized the negative influence of interest on economic progress and shared the aim of depriving capital of its scarcity value. In the following passage which is an excerpt from Chapter 24 Keynes sets an aim to get rid of the scarcity value of money within a generation or two from his time.

The vision put forth and the arguments made in Chapter 24, “Concluding Notes on the Social Philosophy towards which the General Theory Might Lead,” are so supportive of the proposals of Free Capitalism that it feels like a fulfillment of Keynes’s visions. It is very reassuring to find so much commonality of thoughts, views, and vision with an economist of such stature and to be carrying out his vision. The following lengthy excerpt is from that chapter of the book. It is Keynes’s vision statement for his ideas, and his book. The insight and ideas presented in this passage is certainly the most visionary and most persuasive piece of economic writing I have ever read, for obvious reasons.

There is, however, a second, much more fundamental inference from our argument (The arguments made in his book: The General Theory of Employment, Interest, and Money) which has a bearing on the future of inequalities of wealth; namely, our theory of the rate of interest. The justification for a moderately high rate of interest has been found hitherto in the necessity of providing a sufficient inducement to save. But we have shown that the extent of effective saving is necessarily determined by the scale of investment and that the scale of investment is promoted by a low rate of interest, provided that we do not attempt to stimulate it in this way beyond the point which corresponds to full employment. Thus it is to our best advantage to reduce the rate of interest to that point relatively to the schedule of the marginal efficiency of capital at which there is full employment.

 

There can be no doubt that this criterion will lead to a much lower rate of interest than has ruled hitherto; and, so far as one can guess at the schedules of the marginal efficiency of capital corresponding to increasing amounts of capital, the rate of interest is likely to fall steadily, if it should be practicable to maintain conditions of more or less continuous full employment unless, indeed, there is an excessive change in the aggregate propensity to consume (including the State).

 

I feel sure that the demand for capital is strictly limited in the sense that it would not be difficult to increase the stock of capital up to a point where its marginal efficiency had fallen to a very low figure. This would not mean that the use of capital instruments would cost almost nothing, but only that the return from them would have to cover little more than their exhaustion by wastage and obsolescence together with some margin to cover risk and the exercise of skill and judgment. In short, the aggregate return from durable goods in the course of their life would, as in the case of short-lived goods, just cover their labour costs of production plus an allowance for risk and the costs of skill and supervision.

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.

 

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 omne (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.

 

At the same time we must recognise that only experience can show how far the common will, embodied in the policy of the State, ought to be directed to increasing and supplementing the inducement to invest; and how far it is safe to stimulate the average propensity to consume, without foregoing our aim of depriving capital of its scarcity-value within one or two generations. 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. If, however, it should prove easy to secure an approximation to full employment with a rate of accumulation not much greater than at present, an outstanding problem will at least have been solved. And it would remain for separate decision on what scale and by what means it is right and reasonable to call on the living generation to restrict their consumption, so as to establish in course of time, a state of full investment for their successors.

In some other respects the foregoing theory is moderately conservative in its implications. For whilst it indicates the vital importance of establishing certain central controls in matters which are now left in the main to individual initiative, there are wide fields of activity which are unaffected. The State will have to exercise a guiding influence on the propensity to consume partly through its scheme of taxation, partly by fixing the rate of interest, and partly, perhaps, in other ways. Furthermore, it seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment. I conceive, therefore, that 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. But beyond this no obvious case is made out for a system of State Socialism which would embrace most of the economic life of the community. It is not the ownership of the instruments of production which it is important for the State to assume. If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them, it will have accomplished all that is necessary. Moreover, the necessary measures of socialisation can be introduced gradually and without a break in the general traditions of society.

 

Our criticism of the accepted classical theory of economics has consisted not so much in finding logical flaws in its analysis as in pointing out that its tacit assumptions are seldom or never satisfied, with the result that it cannot solve the economic problems of the actual world. But if our central controls succeed in establishing an aggregate volume of output corresponding to full employment as nearly as is practicable, the classical theory comes into its own again from this point onwards. If we suppose the volume of output to be given, i.e. to be determined by forces outside the classical scheme of thought, then there is no objection to be raised against the classical analysis of the manner in which private self-interest will determine what in particular is produced, in what proportions the factors of production will be combined to produce it, and how the value of the final product will be distributed between them. Again, if we have dealt otherwise with the problem of thrift, there is no objection to be raised against the modern classical theory as to the degree of consilience between private and public advantage in conditions of perfect and imperfect competition respectively. Thus, apart from the necessity of central controls to bring about an adjustment between the propensity to consume and the inducement to invest, there is no more reason to socialise economic life than there was before.

 

To put the point concretely, I see no reason to suppose that the existing system seriously misemploys the factors of production which are in use. There are, of course, errors of foresight; but these would not be avoided by centralising decisions. When 9,000,000 men are employed out of 10,000,000 willing and able to work, there is no evidence that the labour of these 9,000,000 men is misdirected. The complaint against the present system is not that these 9,000,000 men ought to be employed on different tasks, but that tasks should be available for the remaining 1,000,000 men. It is in determining the volume, not the direction, of actual employment that the existing system has broken down.

 

Thus I agree with Gesell that the result of filling in the gaps in the classical theory is not to dispose of the ‘Manchester System’, but to indicate the nature of the environment which the free play of economic forces requires if it is to realise the full potentialities of production. The central controls necessary to ensure full employment will, of course, involve a large extension of the traditional functions of government. Furthermore, the modern classical theory has itself called attention to various conditions in which the free play of economic forces may need to be curbed or guided. But there will still remain a wide field for the exercise of private initiative and responsibility. Within this field the traditional advantages of individualism will still hold good.

 

Let us stop for a moment to remind ourselves what these advantages are. They are partly advantages of efficiency — the advantages of decentralisation and of the play of self-interest. The advantage to efficiency of the decentralisation of decisions and of individual responsibility is even greater, perhaps, than the nineteenth century supposed; and the reaction against the appeal to self-interest may have gone too far. But, above all, individualism, if it can be purged of its defects and its abuses, is the best safeguard of personal liberty in the sense that, compared with any other system, it greatly widens the field for the exercise of personal choice. It is also the best safeguard of the variety of life, which emerges precisely from this extended field of personal choice, and the loss of which is the greatest of all the losses of the homogeneous or totalitarian state. For this variety preserves the traditions which embody the most secure and successful choices of former generations; it colours the present with the diversification of its fancy; and, being the handmaid of experiment as well as of tradition and of fancy, it is the most powerful instrument to better the future.

 

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

 

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.

 

The authoritarian state systems of today seem to solve the problem of unemployment at the expense of efficiency and of freedom. It is certain that the world will not much longer tolerate the unemployment which, apart from brief intervals of excitement, is associated and in my opinion, inevitably associated with present-day capitalistic individualism. But it may be possible by a right analysis of the problem to cure the disease whilst preserving efficiency and freedom.

 

It may be unusual for an author to take such a lengthy passage from another book, but here it may be justifiable because of the rare genius and the vision embodied in these words written three quarter of a century ago. It is extremely rare to find writings in Economics that show such vision of the future and it is also rare for an economist to back a proposal for economic change that is coming three quarter of a century later. It speaks about the depth of his understanding and vision while also lending credence to the soundness of Free Capitalism. The striking aspect of the words quoted above is that they were written 75 years ago and they are so relevant to contemporary economic challenges. I have not tried to alter or shorten the passages because the thoughts expressed and the vision put forward require that the arguments made by Keynes be presented in their entirety.

 

Since the above piece is a lengthy one let me summarize the salient points and show that the recommendations of Free Capitalism are fundamentally in line with Keynes’s visions, at least as expressed in his book. I will quote some sentences from the above passage and relate it to the ideas and recommendations presented in this book. The italicized words under quotations are that of Keynes followed by my comments and explanations.

 

“Thus it is to our best advantage to reduce the rate of interest to that point relatively to the schedule of the marginal efficiency of capital at which there is full employment. There can be no doubt that this criterion will lead to a much lower rate of interest than has ruled hitherto;”

 

Given the current economic and environmental conditions and the returns provided by clean energy sectors it is clear that to achieve full employment on a long term basis we need to have zero and even negative interest rates. The rate of interest that has prevailed for centuries has been one of the main obstacles to full employment and will be more so in the foreseeable future.

 

Keynes recommended direct State intervention in reducing interest. He didn’t think banking policy alone could effectively achieve the necessary conditions for optimum rate of investment. The asset tax system proposed here will do away with interest and will also have the capability to create negative interest rates if necessary to achieve full employment and other social objectives.

 

“In short, the aggregate return from durable goods in the course of their life would, as in the case of short-lived goods, just cover their labour costs of production plus an allowance for risk and the costs of skill and supervision.

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”.

 

Keynes clearly foresaw the abundance of capital that prevails in this century and the results of that abundance, particularly as it applied to interest. Gone are the days of the power of capitalists to exploit the scarcity value of capital. The current global economic crisis is a direct result of an economic system that allows such power to the capitalist whereas the underlying scarcity value of capital that economically justified that power does not continue to exist.

 

“Next, he points out that the rate of interest is a purely monetary phenomenon and that the peculiarity of money, from which flows the significance of the money rate of interest, lies in the fact that its ownership as a means of storing wealth involves the holder in negligible carrying charges, and that forms of wealth, such as stocks of commodities which do involve carrying charges, in fact yield a return because of the standard set by money.”

 

It is clear that Keynes would be delighted by this proposal for removal of interest. His unusually strong support for similar efforts by Silvio Gesell, show his intellectual desire for some change in the character of money that would remove the factor, negligible carrying cost, that necessitated the payment of interest. The “negligible carrying cost of money” creates the necessity to pay interest, to let money circulate. In this sense interest is the premium paid or received for liquidity (liquidity premium). Asset tax will introduce a carrying cost of money and therefore eliminate the need for interest.

 

From his writing it is very clear that Keynes considered interest an institution that ought to go. He stated that there is no intrinsic reason for scarcity of capital and thus its reward interest. He agreed with Silvio’s approach of introducing a carrying cost for money, although he disagreed with his specific method. In Free Capitalism since there will be a carrying cost of money, in the form of asset tax, there will be no need for payment of liquidity premium in the form of interest.

 

 

“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.”

 

Here Rentier aspect of capitalism means interest. Rapid industrialization of third world countries has brought us to the point where the rentier aspect of capitalism has served its purpose and is waiting to be replaced by a new system that does not have this aspect of capitalism. Capitalism to survive has to let its rentier aspect go.

 

“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 to be harnessed to the service of the community on reasonable terms of reward.”

 

Keynes wanted a scheme of direct taxation to be instrumental in rewarding the entrepreneur for his services. The removal of interest will create room for additional economic reward for entrepreneurs; and the asset tax scheme as proposed here will provide the tool to positively and negatively influence rewards to entrepreneurs in particular industries and sectors. It should be noted that Keynes suggested using direct taxation in his book after he had already assumed zero or negligible rate of interest which would be a result of capital becoming abundant.

 

Capital will cease to be scarce not only because there is a huge amount of productive capacity available around the world but also because fiat money, diligently used, will allow a huge amounts of capital to be created through higher employment and investments. Capital can be stored in government and other high quality debts without the burden of interest. As long as there is unemployment on a global scale there is no reason for scarcity of capital under the new system.

 

“without foregoing our aim of depriving capital of its scarcity-value within one or two generations.”

 

Keynes’s mention of “one or two generations” seems almost prophetic with regard to the timing of this book. This book and the proposal it presents are about rolling the wheel forward. It is just about taking the next step in an endless journey.

 

“The State will have to exercise a guiding influence on the propensity to consume partly through its scheme of taxation, partly by fixing the rate of interest, and partly, perhaps, in other ways.”

 

Taxation and Interest reduction are the two methods specifically suggested by Keynes both for influencing propensity to consume and for creating inducements for investment. Our proposal uses the same two tools for achieving contemporary economic goals.

 

“that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment;”

 

Asset tax will allow us to translate our social and environmental priorities into a well structured system of economic incentives and disincentives for comprehensively influencing business and investment decisions in an economy.

 

“If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments (of production) and the basic rate of reward to those who own them, it will have accomplished all that is necessary.”

 

Keynes was not for an expansive role of the government in economic affairs; he clearly spelled out a very limited role for the government. It is no coincidence that the role proposed for the government in Free Capitalism is almost the same limited role that he recommended. Free Capitalism’s proposals are in accordance with his vision because we are pushing the same wheel of economic progress that Keynes pushed forward in his days.

 

Asset tax as proposed by Free Capitalism will certainly help the government determine or influence the aggregate amount of resources devoted to investment (augmenting the instruments). Removing interest costs from the business equation will in itself significantly increase the pool of industries and business activities that will qualify for investment; then having different asset tax rates for different industries will allow the new system to direct resources towards industries that meet environmental, employment and other social objectives and to divert away resources from industries and activities that are environmentally, socially and economically damaging.

 

The interest based system being as crude as it is does not help much in the economic and environmental landscape of the 21st century. If interest rates are too low speculation takes hold long before money could go into developing new environment friendly industries. A good example of the speculative nature of the interest based system is the build up of the 2008 financial crisis. During the boom that preceded the crisis most Americans bought houses not because houses were cheap or affordable but because prices were high and rising. People thought prices would keep rising therefore they borrowed money, at the prevailing low interest rates, and kept buying those houses that they could not afford; that is speculation on a mass scale.

 

Asset tax, through applying different tax rates for different industries, will also have an effective mechanism to allow a basic rate of reward to investors. Asset tax will also help in allocating resources to new environment friendly industries; significant amount of investment in those industries is essential to achieve full employment objectives especially in large developed countries like the USA.

 

“Thus, apart from the necessity of central controls to bring about an adjustment between the propensity to consume and the inducement to invest, there is no more reason to socialize economic life than there was before.”

 

Here again Asset tax will allow governments to adjust the propensity to consume through asset tax on cash, bonds and similar savings assets and to influence investments through asset tax on industrial assets. The “central controls” Keynes is talking about is clearly available in asset tax. Free Capitalism will prevent any additional socialization of economic life.

 

The response of most advanced countries to the current economic crisis has already put them on the slippery slope of massive socialization of economic life; Free Capitalism will reverse that and will establish a clear and well defined role of the government in the economy. It will allow the political system to properly adjust, adapt, and respond to the economic and environmental realities of the 21st century.

 

 

“the modern classical theory has itself called attention to various conditions in which the free play of economic forces may need to be curbed or guided.”

 

In the 21st century, with the environmental and resource constraints, global competition for jobs, over population and other planetary issues the free market system needs much more guidance and direction that it did in the days of Keynes.

 

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

 

Europe and America responded to the 2008 financial crisis by massive government interventions to save the financial system and the economy. Even seventy-five years later Keynes’s fear about the replacement of an individual initiative based economic system with some form of socialism is still a very real and likely possibility. The reason socialism remains a clear threat to free enterprise system is the lack of an appropriate and systematic role of government in guiding and influencing the composition and the aggregate of investment activities in the economy.

 

The environmental challenge and the increasing global competition for jobs require a structured government response on a macro economic scale. The changes in the current system proposed here will allow all governments to appropriately respond to these challenges without exporting their problems to other countries. These changes will once and for all remove the threat of socialism by addressing the failures of the current economic system.

“The authoritarian state systems of today seem to solve the problem of unemployment at the expense of efficiency and of freedom. It is certain that the world will not much longer tolerate the unemployment which, apart from brief intervals of excitement, is associated and in my opinion, inevitably associated with present-day capitalistic individualism. But it may be possible by a right analysis of the problem to cure the disease whilst preserving efficiency and freedom.”

After the 2008 financial crisis we seem to be particularly going in the direction where the state is being forced to solve the problem of unemployment through economic activities that are socialistic in nature. Free Capitalism will reverse that trend. The capitalistic individualism mentioned by Keynes will be addressed by the new system in two ways:

  1. Removal of interest will kill the feature of money to grow by itself and therefore take away the basic power that promotes increasing individualism as the amount of money grows. After a critical amount of money is accumulated (let us say ten million dollars) the individual can rely on his money alone because the geometric growth in money will take care of all his needs and still keep growing. Interest tends to create an individual who is economically self-contained for ever. Interest also creates the rentier aspect of capitalism. Interest creates the tendency where the rich become richer and the poor poorer. This tendency alone can cause serious unemployment problems on a regular and aggravating basis.
  2. Asset tax will further reduce the power of wealth and money by introducing a process of erosion in all assets including money. Free Capitalism will also reduce capitalistic individualism because it will allow the state to have a role in capitalistic choices. This will be the collective aspect of capitalism.

By significantly reducing the power of capital for an individual; the tendency of capitalistic individualism to hurt social causes will be significantly reduced. Free Capitalism will reduce those aspects of capitalism that are detrimental to the well being of the society and the planet and will retain those properties of capitalism that promote individual and social well being.

“By the right analysis” as Keynes hoped we are able to “cure the disease whilst preserving efficiency and freedom.”


Chapter 21

Table of Contents