The General Theory Ch. 16

K may or may not have liked something that may or may not have been socialism

“Was Keynes a socialist” is one of those questions that people ask often enough that it’s unlikely that any particular answer will tell us anything useful. It’s also a weird question, because the way it is posed makes “socialism” seem like a team rather than a goal: “socialism” is just whatever happens as a result of listening to people who are “socialists.” It doesn’t matter so much what the particular arrangement of economic objects or actions or institutions is. As such, I am going to try and avoid the question.

Instead, I’m going to do some comparative stuff between the vision of capitalist sabotage that Keynes puts forward here and the vision of capitalist sabotage that Veblen puts forward in The Engineers and The Price System. Both Keynes and Veblen see the fundamental problem of capitalism as being underinvestment, which can be usefully compared and contrasted with Marx, who can be read in different places as arguing that the problem is either underinvestment, overinvestment, or the idea of investment in the first place.

Since all of that compare and contrast brings us closer to social theory than economics – as capital theory always inevitably does – I’m also going to include a first section using some ideas from this chapter to prepare you all for Chapter 17, the real heart of the book and give give the silliest possible explanation of the Arrow-Debreu general equilibrium model. Keynes gives a kind of jokey example at the beginning of this chapter that the post-Walrasians managed to turn into a seventy-year research program, once they got ahold of computers that could do linear algebra fast enough.

Capital Goods and Scarcity

This chapter is called “Sundry Observations on the Nature of Capital,” and boy is it ever sundry. In this section, we’re going to hit the core economic points quickly.

The basic argument is that the “capital” nature of a capital good comes about not because capital goods can be used to produce things, or because industrial processes are particularly gross, or because it’s congealed labor, or for any other really physical reason. Instead, the “capital”-ness of a capital good is a fundamentally monetary and financial question. A capital good is a commodity which, when used in the production of other goods or services, produces a cash flow over and above its operating cost.

Nobody buys a capital good because they want that specific capital good. No capitalist – as a capitalist – gets that excited about machines. They don’t even want the things that capital goods are used to produce: what is one person going to do with a factory’s worth of silverware? Instead, capitalists purchase capital goods because they produce a stream of revenues when you run them and sell the things they produce.

As we’ll see, this is an impressively tight definition of a capital good: if something’s prospective yield falls to zero, it stops being a “capital good” in a meaningful sense. The amount the things it produces can be sold for sums to less than the cost of producing those goods. The former “capital good” might become one again later, the same way that certain resources shift back and forth between being “nature” and “resources,” but at time t, when the yield zeroes out, it stops being a capital good.

The next step after defining “capital good” is to ask, well, why do some goods have a prospective yield and not others? And why would it change?