Keynes and the Forgotten Factor
[Reprinted from Land & Liberty,
KEYNES in his General Theory dismissed land as a factor in
production worthy of any consideration. His logic was therefore
immediately truncated. He was left playing with effects rather than
We know of Keynes' complacency towards land from his self-satisfied
address to the Liberal Summer School at Cambridge in 1925
these causes for which the Liberal Party fought are successfully
achieved or are obsolete or are the common ground of all parties
alike. What remains? Some will say the land question. Not I - for I
believe that this question, in its traditional form, has now become,
by reason of a silent change in the facts, of very slight political
And yet, ten years later, the "silent change of facts" did
not eliminate the need for this statement in his concluding notes to
the General Theory: "The outstanding faults of the
economic society in which we live are its failure to provide for full
employment and its arbitrary and inequitable distribution of wealth
Keynes says that eventually we will witness the "euthanasia of
the rentier" - the reduction of interest payments to zero. His
predecessor on this was Proudhon, who categorically stated: "By
every economic law, increased production of capital increases also the
total of the capital supplied to the workers, thus raising wages and
finally reducing interest (surplus-value) to zero."
Proudhon's adversary, Marx, was less sweeping; he stipulated six "counteracting
causes" which would reduce his famous theory of the falling rate
of profits to a "tendency."
But what of rent? Nothing. Yet Keynes affirmed: "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."
Assuming for the purposes of argument that the claims of capital
disappeared, we are still left with the antagonism over ownership of
rent. The result can be examined on two planes. Existing landowners
would increase their demands on the net product. Up goes rent. Other
people, with wealth which they are prepared to invest, will - unless
there is a miraculous transformation of motives ("silent change
of the facts"?) - demand a reward; and this inevitably means a
switch in investment to land. Up goes rent.
In these conditions we would still not have necessarily eliminated
unemployment, a phenomenon which Keynes "inevitably associated
with the present-day capitalistic individualism," to quote his
own words. Depressions in the past have been characterised by idle
capital capacity - and idle land. 'The quantity of capital in
existence has not been conspicuous in its ability to buy a one-way
ticket out of the trough. A regressive tax on wealth is no incentive
to production; but a progressive tax on land is an immediate stimulus
A further paradox emerges. Keynes imagines peace reigning where the "functionless
investor" has disappeared. And yet to arrive there nevertheless
requires tension, for he admits that it may be necessary to have a "somewhat
comprehensive socialisation of investment" as the only means of
securing full employment while enforcing communal saving through the
state at a level which would allow growth of capital up to the point
where it ceases to be scarce.
This is a direct admission that if allowed to work freely the market
would not inevitably see the doom of interest as a mechanism for
On top of this Keynes compounds the paradox by asserting: "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." He thus creates the impression of wanting to keep the
cake intact while his disciples, the politicians and economists, eat
Because he failed to realise the importance of land, Keynes had to
lay the blame for anomalies elsewhere. He chose the vague concept of "individual
enterprise" - an element which he nevertheless wished to retain
in the life of the market! Because of this indeterminate mixing of
values, we find no clear divisions as to where private enterprise
stops and public enterprise takes over, much to the joy of those who
seek the corporate state as a solution to all evils.
Doggedly, Keynes persisted in his cul-de-sac thinking. For instance,
in discussing the cause of war (pleasurable excitement of dictators
apart) he says there are two economic reasons, "namely, the
pressure of population and the competitive struggle for markets."
He leap-frogs over the first; the second he thinks "germane."
Here we find that trading nations seek to expand their industries by
selling products to foreign markets. Markets are not inanimate
objects; they are groups of geographically-separated people. People
need incomes if they are to buy. Incomes are derived through producing
wealth, with which to trade. Work requires natural resources to
utilise (few economies being able to rely on service industries alone
for survival), and natural resources are what the economist defines as
land. Thus we come back full circle.
Loose thinking has been translated into economic sharp practice by
politicians who have a vested interest in creating illusions about our
national well-being and who promulgate measures on the basis of what a
shrewd observer recently labelled "political cost: benefit
Our heritage from Keynes is the in-built propensity to inflate the
currency, the cost of which few people have been able to avoid.
Governments try desperately to minimise the results of inflation by
regressive taxation of income earners hoping that it will offset the
excess demand pumped into the market by the government itself. But as
Keynes observed in Chapter IX of How to Pay for the War: "If
income tax is raised, the gross figures in the yield exaggerate the
increase in resources from taxes and voluntary savings added together,
since the higher tax will not be met entirely by a reduction in
consumption but partly by a reduction in savings."
From this arises two unavoidable effects: (1) the persistence of
inflation - the effects of which politicians struggle to minimise; and
(2) a gradual cut-back in the rate of savings, which consequently
affects investment. Not surprisingly, post-war investment in the
British economy has been one of the first things to be affected by
government deflationary measures.
Slavish adherence to views which, because they have allegedly "stood
the test of time" are regarded as proven, is the surest way of
erecting barriers against the qualitative development of the thinking
man, and therefore of his society. Views which conflict with the
traditional beliefs of a culture are regarded as heretical or
revolutionary, to be stamped out as dangerous to the society which
cannot accommodate them.
Herbert Marcuse in One Dimensional Man puts it thus: "Social
theory is concerned with the historical alternatives which haunt the
established society as subversive tendencies and forces. The values
attached to the alternatives do become facts when they are translated
into reality by historical practice. The theoretical concepts
terminate with social change."
Henry George has been called an "underground" economist and
revolutionary, but the pejorative use of these words begs the
question. For it only becomes a derogatory label if what the
revolutionary preaches is unacceptable to those who seek to preserve
the existing order of things.
People with vested interests to protect are not impartial judges when
it comes to evaluating historical alternatives.