Keynes and the Modern Revolt Against Classical Doctrine

The recent works of John Maynard Keynes, the great economist of Cambridge, England, have challenged many of the older ideas on capital, although in general he has remained well within the neo-classical tradition. His book on The General Theory of Employment Interest and Money published in 1936 is of importance in this connection. In the first place he shared the views of certain of his predecessors that it was possible for the supply of capital to become larger than a community could put to use. This condition would arise because the search on the part of savers for a prospective yield (appreciation in value of an investment) reduced the demand for present goods, and would not, as most economists had contended, create a de­mand for future goods. Since prospective yield depended upon the demand for goods, the withdrawal of present demands would make even the existing supply of capital too large. According to his own statement he claimed to "sympathise, therefore, with the pre-classical doctrine that everything is produced by labor aided by what used to be called art arid is now called technique, by natural resources which are free or cost a rent according to their scarcity or abundance, and by results of past labor, embodied in assets, which also command a price according to their scarcity or abundance." Furthermore, the theory of being paid for wait­ing, upon which Nassau Senior and von Bohm-Bawerk placed so much emphasis, has no foundation in fact, he felt, since waiting or abstinence cannot in itself produce value.

Theories of capital play an important part in the teachings of the exponents of socialist doctrines. One of the first to complain about the effects of capital was Sismondi (1773-1840), who in so many instances used the theories of Adam Smith as a starting point in making his analysis of capital. The division of labor was the principal cause of the increased powers of production. This, however, was dependent upon an ever increasing quantity of cir­culating capital. The machines and the expensive establishments in which they were housed required a first cost which was only returned over long periods of time. This presupposes a quantity of capital which can be spared from present use "in order to establish a permanent kind of rent." Sismondi contended that the introduction of new machinery should serve a social pur­pose such as creating a new demand for labor or putting goods within the reach of new consumers. If it did not achieve this pur­pose, it should at least not displace or render useless a certain number of producers whether native or foreign. He saw no way to control inventions at home, much less abroad; and concluded, that economic life was a war of machines against man.