Eighty years after

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. […] 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.

John Maynard Keynes. The General Theory of Employment, Interest and Money Ch.24, II (1936)

Eighty years ago, Keynes explained that capital could become overabundant, either of itself or because of government action. Though it took somewhat longer than he might have imagined, that is today’s reality. The dotcom bubble, the subprime mortgage scam, and now unicorn companies, all were and are the consequences of too much money chasing too few investments. If market forces had been allowed to act in 2008/9, the “too much” would have been skimmed off by some resounding bankruptcies. But governments stepped in with bailouts, and central banks have since flooded the market with quantitative easing money.

The world is submerged by liquidity looking for a return (1). And this coincides with a slowdown in the growth of global production and of productive investments. Presently, the only way money can “earn” anything is from bets on the ups and downs in value of equity, commodity and currency markets. Buying and selling can still bring a profit, but lending and producing are at zero or negative. This means that investment and pension funds are struggling to pay out what was promised, and savings have stopped compounding any interest. Rentiers in this century are mostly pensioners, and they are effectively being euthanized as dwindling incomes oblige them to spend their capital.

Keynes also forecast a changing attitude to wealth.

[…] When the accumulation of wealth is no longer of high social importance, there will be great changes 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 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 – as distinguished from the love of money as a means to the enjoyments and realities of life – 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 specialists in mental disease. All kinds of social customs and economic practices, affecting the distribution of wealth and of economic rewards and penalties, which we now maintain at all costs, however distasteful and unjust they may be in themselves, because they are tremendously useful in promoting the accumulation of capital, we shall then be free, at last, to discard.

J.M.K. Economic Possibilities for our Grandchildren (1930) Essays in Persuasion Ch.5, 2

There has been an increasing stigmatisation of the richest one per cent of the population, but Bill Gates, Warren Buffet et al. are still fascinating and popular icons, notwithstanding their “semi-criminal, semi-pathological propensities”. The glamour of wealth is still an aspiration propagated by corporate media, and the social media counter-culture is largely contaminated. This continuing glorification of wealth has accompanied the persistence of poverty and the growing divide between the two. The demand for investments has outstripped supply. But, instead of going to deprived communities, the excess is being destroyed by stock market gambling and by negative returns. Capital growth has reached its limits, and the exploitation of labour has intensified. Keynes’ logic was justified, but his rosy vision of the future was flawed. Humans are still largely preoccupied either by physical survival or by owning more than their neighbours.

1. Global regulators proposed tougher standards for clearinghouses at the heart of the $493 trillion derivatives market, taking some of the biggest steps yet to prevent the platforms from becoming too big to fail.

https://finance.yahoo.com/news/swaps-clearing-faces-tougher-rules-100000121.html