NO REMEDY IN THIS CONSUMPTION OF THE PURSE
But the sort of reasoning we developed in the last of this series is alien to much of today’s mainstream, many of whose members succumb to the long-dispelled, circular fallacies of the productivity argument. Yet more of them adhere to what Dennis Robertson wickedly derided as Keynes’ Cheshire Cat theory of ‘liquidity preference’ (‘The rate of interest is what it is because it is expected to be other than it is. But if it is not expected to be other than it is, there is nothing to tell us why it is what it is… [it is] a grin without a cat’).
Otherwise, espousing no theory at all, but instead mumbling a few half-digested phrases of Wicksell by way of an incantation, they resort to the blunt force trauma of macro-econometrics to ‘prove’ that this, that, or the other interest rate must be ‘natural’ (or sometimes merely ‘neutral’) if their particular choice of statistical architecture happens to suggest that its imposition is all that is needed to ensure that that bastardized modern form of ‘price stability’ (which is actually a low-level, chronic inflationary creep) will once again prevail.
In practice – and for all the droning to that end of speechifying central bankers – it has not been so much an abstruse, cabbalistic calculus as an impatient, heuristic groping which has determined the market rates – as implausibly low as they have turned out be – which have been imposed upon us as these theories have taken root. There may have been widespread disappointment that these nostrums have failed to take immediate effect, but none of those administering the snake oil have been in the least willing to admit their fundamental error – much less to seek out and eradicate all other impediments to sound finance, individual enterprise, and healthy market clearing.
Rather than subjecting themselves to the anguish of the soul-searching that would entail – and readily afflicted by the latest mutation of that gloomy millennialism to which large numbers of the frustrated intelligentsia have habitually fallen prey – they have instead sought their excuses in the mischief being wrought by that figment of their imagination – that diabolus ex machina – which is nothing but a rehashed version of the first-generation Keynesians’ resoundingly disproven theory of ‘secular stagnation’.
From a vantage point on the more respectable wing of this particular sect of pessimism, the belief has brought the likes of Larry Summers belief to muse upon the existence of a ‘negative, real rate of interest’ as the corollary to our current economic sluggishness – a proposal which all of our forgoing examination should strongly suggest to the reader is a logical impossibility.
Meanwhile, at the more irresponsible, if not to say extremist, end of the cult, the Krugmans, the Haldanes, and the Buiters have been busy cooking up much more Swiftian scenarios – ones filled with helicopter drops, cash bans, serial bubbles, and even wars on Mars (sic) as a means to jump-start economic vitality.
If there is one field in which the world we truly does face an ineradicable over-capacity, it is surely in the production of dangerous enthusiasms by those who hold tenured chairs in the Faculty of Fatal Conceit.
It is an irony that such men who, when holding forth in matters of which they have no especial expertise, tend to subscribe to the stultifying ecological fearfulness of the ‘precautionary principle’, are the same monetary Doctor Frankensteins for whom no new assault upon economic reason or institutional tradition is too wild-eyed or too unpredictable to essay.
Similarly, those among them men who gravely try to assure us that no amount of government debt is too great – since we only ‘owe it to ourselves’ – are at once those most given to loud, public lamentation over what the ensuing build-up of mountain of illusory self-obligation entails for a State which will soon only be able to levy the sums that Everest’s service demands from a demographically less numerous posterity. The only consolation this debt’s erstwhile promoters can take from their self-contradictory fears is that they furnish them with the perfect excuse for yet further indulgence in half-crazed experimentation of the type best exemplified by the rapidly unravelling farce of ‘Abenomics’.
These savants, having evidently crossed beyond the narrow threshold from genius, we shall leave to the metaphorical padded cells with which their ivory towers come equipped. But we would seek to dispute matters with former-Secretary Summers – a man whose heavyweight reputation should not blind us to the fact that he has contributed in one capacity or another to several of the more debilitating financial upsets – as well as to one or two of the outright economic debacles – which have plagued us these past twenty years. Remember, too, his eve of crash hyperbole about the prodigies being delivered by ‘tieless’ Tech executives, back in early 2000.
We would firstly remind Summers that the default position of that insistent little devil on our shoulder is that we should yield to each passing temptation without qualm and treat the tomorrow when we must pay the price of our surrender as a day that never dawns. On that account, we must always be offered some little sweetener to go against his urgings. That ‘something’ is interest and given that the concept of a negative sweetener is somewhat nonsensical, in real terms, therefore, such interest is always positive.
The man who most often offers to pay us that interest (and certainly the one who most fruitfully does so) is the producer-entrepreneur who has a plan to carry out but who lacks enough savings of his own to be able to feed and clothe himself and his workers while he does so.
Moreover, unless our man works in some idealized primary industry and uses nothing whatsoever previously produced by any other human agency, he must, by extension, also make a proportionate contribution to the workers at all those other firms which sequentially combine to provide him with his stock of components and raw materials and who therefore do not themselves add to the immediate stock of end-consumables of which both we and they alike have need.
Naturally, our entrepreneur acts in the expectation that his use of present goods will give rise to an even more valuable future supply of goods; i.e., that his project’s own consumption will be productive of value, not exhaustive of it. Individually, he may turn out to be mistaken in that laudable estimation, of course, but when we consider his motivation and the reason he therefore contracts to pay interest, it is the intent and not the outcome which matters.
In reality, of course, the path of human material progress shows that the successes tend to outnumber (or at least to outweigh) the failures, if by a narrower margin and in greater concentration than one might be led to suppose. Those regrettable occasions when this is NOT the case have their roots in some form of social calamity, whether that entails a natural disaster – such as fire, flood or famine – or a manmade one such as bad government, or war, or that all-too frequent, systemic scrambling of price signals which arises from the generation of too much ‘fictitious capital’ under conditions of artificially low market interest rates and the overly elastic provision of credit.
When he first sets about his venture, our entrepreneur has no wish to emulate the weary patience of a Robinson Crusoe while he painstakingly marshals the necessary resources for it. It may also be the case that the scale of his vision puts it beyond the capabilities of any one man to lay in a sufficient stockpile, whether of goods or money.
If, therefore, he can persuade some thrifty group of Men Fridays to provide him, on demand, with the necessary means instead, he knows what he is really acquiring from these, his lenders, is TIME. This is important enough to re-iterate: interest is NOT the price of ‘money’ – much less is it that of those cash hoards Keynes conflates with ‘liquidity’ – it is the price of time, the time saved in acquiring a stock of employable (or enjoyable) present goods beyond the capacity of one’s present income or past accumulated savings.
With that in mind, if we now imagine that we live amid the distortions of Summer’s House of Mirrors, the negative real natural rate which he imagines to prevail there can only mean that we have come to prefer future consumption to consumption today and that therefore we must now pay a man not to postpone his breakfast, as in the everyday world, but rather to call off the hunger strike upon which he is only too willing to embark each morning.
That is bizarre enough in itself, but what Mr. Summers does not explain is what happens when tomorrow becomes today and the day after becomes the next tomorrow. Surely our abstemious one will be minded to repeat his act of abstention and then, as the heavens turn relentlessly in their circle about him, to do so again, and again, and again, unless he is continually prodded and paid to act against these most perverse of inclinations and actually USE something up?
But here we run into a paradox, for what will our dedicated ascetic do with the reward we have given him? Being intrinsically a current good (for that is what money is), he will again wish to defer its use and so he will presumably set it, too, aside, building up a sterile hoard until he and his whole race die of inanition and inaction like the fictional inhabitants of Joss Whedon’s Planet Miranda in the film, ‘Serenity‘.
And while this folly of self-denial is unfolding, what of the hero of the Modern Age, the enterpriser, the man who lives at hazard, enriching himself by giving us whatever it is we wish to have and on better terms than those extended to us by his competitors?
Well, it only takes a moment’s thought to see that the ex-consumer, now wishing only to be rid of the embarrassment of his present goods, will pay our man to take them away. But since future goods trade at a premium to current ones in this topsy-turvy world, this latter no longer has the duty to husband them and nurture them in order to bring about the increase from which he hopes both to discharge his contractual obligations and make his living.
To the contrary, he can idly or deliberately waste some portion of these goods and still be ahead in the game. We will thus be paying him not to fructify his capital but to despoil it. To complete the ‘Serenity’ metaphor, the entrepreneur will become a Reaver – a destroyer, not a creator.