"This jump in both money and real wage-rates in 1934 was the direct result of governmental intervention—the National Recovery Administration codes put into effect under government pressure in the first years of the New Deal. But it is precisely this jump in both money and real wage-rates that helps to explain the continuance of mass unemployment throughout the Thirties. This again is a statistical disproof of Keynes's central thesis that unemployment has nothing to do with the height of wage-rates—or even that unemployment is rather owing to wage-rates being too low than to their being too high. From 1931 through 1939 both money wage-rates and real wage-rates rose. Money wage-rates rose from 51 cents an hour in 1931 to 63 cents in 1939. In constant (1954) prices, real wage-rates rose from 91 in 1931 to 122 in 1939. What was the result? In that ten-year period there was an average annual unemployment of 10 million men and women." (p. 23)
"It is a sheer absurdity that all things should fall in value, and that all producers should, in consequence, be insufficiently remunerated. If values remain the same, what becomes of prices is immaterial, since the remuneration of producers does not depend on how much money, but on how much of consumable articles, they obtain for their goods." (pp. 35-36)
"There is no amount of capital which may not be employed in a country, because a demand is only limited by production. No man produces but with a view to consume or sell, and he never sells but with an intention to purchase some other commodity, which may be immediately useful to him, or which may contribute to future production. By producing, then, he necessarily becomes either the consumer of his own goods, or the purchaser and consumer of the goods of some other person." (p. 37)
"Any individual act of abstaining from consumption necessarily leads to, and amounts to the same thing as, causing the labor and commodities thus released from supplying consumption to be invested in the production of capital wealth.... The whole of a man's income is expended in the purchase of services and of commodities. It is indeed commonly said that a man spends some portion of his income and saves another. But it is a familiar economic axiom that a man purchases labor and commodities with that portion of his income which he saves just as much as he does with that he is said to spend. He is said to spend when he seeks to obtain present enjoyment from the services and commodities which he purchases. He is said to save when he causes the labor and the commodities which he purchases to be devoted to the production of wealth from which he expects to derive the means of enjoyment in the future." (p. 42)
"To regard the tendency toward increasing proportional saving when income increases as an ominous development that threatens to create secular unemployment and poverty.... Unemployment, even on his theory, is not caused by the amount that Consumption falls short of Income, but only by the amount that Consumption and Investment combined fall short of income.... If Keynes had held such a concept (and this concept is strongly implied, in spite of explicit denials, in much of what he wrote in the General Theory), then it should have occurred to him that the relevant equations for his purposes did not concern the amount by which Consumption alone fell short of Income, but the amount by which Consumption and Investment together fell short of Income.... It would merely mean that there would be a tendency (and, as I shall later show, a wholly desirable tendency) for a smaller percentage of the working force to be employed in turning out consumption goods and a larger percentage in turning out capital goods." (pp. 117-122)
"The capitalist system, in fact—which is the system of free, private, competitive enterprise—has been doing more to reduce production costs, and to relieve scarcity, than any system in history. But... all talk of making capital so plentiful as to reduce its marginal efficiency to zero "within a single generation" is the purest moonshine. No doubt Keynes's "system" owes part of its popularity to the impression that he has at last provided not only that Economics of Abundance, of which the Utopians have been dreaming from time immemorial, but has combined with it a Conspiracy Theory according to which the Moneylenders keep everything scarce in order that they may continue to receive Interest. But if everybody could have Complete Abundance of everything simply by ceasing to "keep capital scarce," then this Conspiracy must certainly be the most stupid and pointless in history." (pp. 233-234)
"Adam Smith has stated that capitals are increased by parsimony, that every frugal man is a public benefactor, and that the increase of wealth depends upon the balance of produce above consumption." (p. 356)
"Among the mistakes [of the pre-classical writers] which were most pernicious in their direct consequences... was the immense importance attached to consumption. The great end of legislation in matters of national wealth... was to create consumers.... This object, under the varying names of an extensive demand, a brisk circulation, a great expenditure of money, and sometimes totidem verbis a large consumption, was conceived to be the great condition of prosperity. It is not necessary, in the present state of the science, to contest this doctrine in the most flagrantly absurd of its forms or of its applications. The utility of a large government expenditure, for the purpose of encouraging industry, is no longer maintained.... It was triumphantly established by political economists, that consumption never needs encouragement.... The person who saves his income is no less a consumer than he who spends it: he consumes it in a different way.... What is consumed for mere enjoyment, is gone; what is consumed for reproduction, leaves commodities of equal value, commonly with the addition of a profit." (pp. 365-366)
"The argument against the possibility of general overproduction is quite conclusive, so far as it applies to the doctrine that a country may accumulate capital too fast; that produce in general may, by increasing faster than the demand for it, reduce all producers to distress.... It is true that if all the wants of all the inhabitants of a country were fully satisfied, no further capital could find useful employment; but, in that case, none would be accumulated. So long as there remain any persons not possessed, we do not say of subsistence, but of the most refined luxuries, and who would work to possess them, there is employment for capital.... Nothing is more true than that it is produce which constitutes the market for produce, and that every increase of production, if distributed without miscalculation among all kinds of produce in the proportion which private interest would dictate, creates, or rather constitutes its own demand." (pp. 370-371)
"The "contribution" of Keynes that his disciples most often insist upon as valid and "permanent" is the substitution of "full employment" as the goal of economic activity rather than the "maximum production" of the classical economists." (p. 399)
"The economic goal of any nation, as of any individual, is to get the greatest results with the least effort. The whole economic progress of mankind has consisted in getting more production with the same labor.... Production is the end, employment merely the means.... The progress of civilization has meant the reduction of employment, not its increase. It is because we have become increasingly wealthy as a nation that we have been able virtually to eliminate child labor, to remove the necessity of work for many of the aged and to make it unnecessary for millions of women to take jobs." (pp. 407-408)
"No analysis of Keynesian economics would be complete without at least some discussion of what is variously called "aggregrative" economics, "macro-economics," and "the national income approach." Many of his disciples are under the impression that it was Keynes who created "the national income concept." This is pure fantasy.... Yet "The national income approach" owes at least part of its present vogue to Keynesian ways of thinking." (p. 409)
"It is impossible, in sum, to arrive at a precise, scientific, objective, or absolute measurement of the national income in terms of dollars. But the assumption that we can do so has led to dangerous policies, and threatens to lead to even more dangerous policies.... Another bad practice to which a too literal reliance on national income figures has led is that of insisting on the urgency of a certain "rate of growth" of the national income, no matter what level it has already reached. This insistence on achieving or maintaining a certain "rate of growth" is the result of several misconceptions.... As more and more things become plentiful (except dollars) there might even be a tendency for the national income figures to reflect this by falling, because prices might fall faster than output rose." (p. 415-417)
Go to Table of Contents
Go to Quotes