A Peace of Keynes – The Cake
November 29, 2011Posted by on
John Maynard Keynes was temporarily attached to the British Treasury during the First World War and was their official representative at the Paris Peace Conference up to June 7, 1919; he also sat as deputy for the Chancellor of the Exchequer on the Supreme Economic Council. He resigned from these positions when it became evident that there was no hope of substantial modification in the draft Terms of Peace. The grounds of his objection to the Treaty, or rather to the whole policy of the Conference towards the economic problems of Europe, are contained in his book THE ECONOMIC CONSEQUENCES OF THE PEACE. Written in 1919, when Keynes was 36 years old, this book brought him fame. It is, in part, condensed in the following, which covers Keynes’ deliberations on the accumulation and division of wealth leading up the First World War and the impact that war may have on it.
Keynes premised that the accumulation of capital through the power of investment was the main justification for the Capitalist System. An accumulation of capital only made possible through the unequal distribution of wealth. Capitalist, like bees, saved and accumulated, those less fortunate only benefited when able to service less needs. The immense accumulations of fixed capital which were built up during the half century before the First World War, could never have come about in a Society where wealth was divided equitably. This Capitalist system depended for its growth on a double bluff or deception. Firstly; that the laboring classes accepted having very small slice from this ‘cake of wealth’, which they and the capitalists were co-operating to produce. Secondly; an acceptance that the capitalist classes took the lion’s share of the cake (conditional on them consuming very little of it). “Saving” became a duty and ‘investing’ in the growth of the cake the object of true religion. Saving was for old age or for your children; but this was only in theory. The virtue of the cake was that it was never to be consumed, it simply ‘grew’.
No one would be much the better off if the cake were shared all round, it was really very small in proportion to the appetites of the consumers (even at that time). Society was not working for the small daily pleasures but for the future security and improvement of the race,—in fact for “progress.” If the cake were allowed to grow in proportion with the population – and with compound interest – perhaps a day might come when there would at last be enough to go round. The two pitfalls to this prospect were that the population would outstrip the accumulated growth of the cake and, however much grown, the cake would be consumed prematurely as in a war.
In this Keynes was pointing out that the principle of accumulated wealth based on inequality was a vital part of the pre-First World War order of Society and ‘progress’ as it was understood then. Emphasizing that this principle depended on unstable psychological conditions, which it may be impossible to recreate. These being; that it was unnatural for a population minority to accumulate such huge wealth when so few enjoyed the comforts of life. However, the war had disclosed the possibility of consumption to all and the vanity of abstinence to many. In discovering this bluff , the laboring classes were unlikely to forego so much. The capitalist classes, no longer confident of the future, were likely to enjoy more fully their liberties of consumption so long as they last, and thus precipitate the hour of their confiscation.
Written by Keynes nearly one-hundred years ago; he may be right in attributing the accepted order of society to an unstable psychological condition, but wrong in thinking that may be impossible to recreate it without adding the caveat — in a democratic capitalist society. Saying that it is unnatural to distribute wealth so disproportionately while so few enjoy the comforts of life could be considered as Keynesian altruism. The unequal distribution of wealth is something that history and contemporary world society would suggest is the norm. That is until there is insurrection against such iniquity, this providing only a temporary respite until the inequality is restored. He is certainly right in suggesting that the labouring classes are no longer be willing to forego a larger share of the ‘cake’ and in the capitalist classes losing confidence in their future.
What he is unlikely to have foreseen at the point of his writing, was how large this cake was to grow encouraged by Machiavellian interpretations of the economic theories he was to develop. That capitalist governments would foster the global liberties of consumption by many other than the wealthy. That this would be the ingredient of an insatiable growth, a growth fueled by wealthy investors and precipitating its decline. That wealth creation schemes, achieved through the manipulation of wealth by the wealthy, would excluded and exploit the many. In recognising the economic folly inherent in such manipulation by the wealthy and the abrogation of economic rectitude by governments, Keynes was to write later that; capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable.