Friday, April 29, 2011

Keynes and the "Socialization of Investment"

Cold War paranoia really screwed over the United States in many ways - it generated a lot of pathologies. One is that it's hard to talk seriously about anything that Marx wrote around a large portion of the population. I can deal with that - I can do without Marx on a day to day basis - but it's still unfortunate. It's harder, though, to talk about other people who called themselves "socialists" explicitly or who talked about "socialization". This stuff always gets tied back to Marxism in people's minds, and that's unfortunate.

If only Keynes knew about what would happen in the 1950s and 1960s back in 1936. He might have thought of something to replace "socialization of investment" with. Commenters on this post are getting interested in that, so I thought I'd share some from one of my favorite books of Keynes - The End of Laissez Faire (1926).

"I believe that in many cases the ideal size for the unit of control and organisation lies somewhere between the individual and the modern State. I suggest, therefore, that progress lies in the growth and the recognition of semi-autonomous bodies within the State - bodies whose criterion of action within their own field is solely the public good as they understand it, and from whose deliberations motives of private advantage are excluded, though some place it may still be necessary to leave, until the ambit of men's altruism grows wider, to the separate advantage of particular groups, classes, or faculties - bodies which in the ordinary course of affairs are mainly autonomous within their prescribed limitations, but are subject in the last resort to the sovereignty of the democracy expressed through Parliament.

I propose a return, it may be said, towards medieval conceptions of separate autonomies. But, in England at any rate, corporations are a mode of government which has never ceased to be important and is sympathetic to our institutions. It is easy to give examples, from what already exists, of separate autonomies which have attained or are approaching the mode I designate - the universities, the Bank of England, the Port of London Authority, even perhaps the railway companies. In Germany there are doubtless analogous instances.

But more interesting than these is the trend of joint stock institutions, when they have reached a certain age and size, to approximate to the status of public corporations rather than that of individualistic private enterprise. One of the most interesting and unnoticed developments of recent decades has been the tendency of big enterprise to socialise itself. A point arrives in the growth of a big institution - particularly a big railway or big public utility enterprise, but also a big bank or a big insurance company - at which the owners of the capital, i.e. its shareholders, are almost entirely dissociated from the management, with the result that the direct personal interest of the latter in the making of great profit becomes quite secondary. When this stage is reached, the general stability and reputation of the institution are the more considered by the management than the maximum of profit for the shareholders. The shareholders must be satisfied by conventionally adequate dividends; but once this is secured, the direct interest of the management often consists in avoiding criticism from the public and from the customers of the concern. This is particularly the case if their great size or semi-monopolistic position renders them conspicuous in the public eye and vulnerable to public attack. The extreme instance, perhaps, of this tendency in the case of an institution, theoretically the unrestricted property of private persons, is the Bank of England. It is almost true to say that there is no class of persons in the kingdom of whom the Governor of the Bank of England thinks less when he decides on his policy than of his shareholders. Their rights, in excess of their conventional dividend, have already sunk to the neighbourhood of zero. But the same thing is partly true of many other big institutions. They are, as time goes on, socialising themselves.

Not that this is unmixed gain. The same causes promote conservatism and a waning of enterprise. In fact, we already have in these cases many of the faults as well as the advantages of State Socialism. Nevertheless, we see here, I think, a natural line of evolution. The battle of Socialism against unlimited private profit is being won in detail hour by hour. In these particular fields - it remains acute elsewhere - this is no longer the pressing problem. There is, for instance, no so-called important political question so really unimportant, so irrelevant to the reorganisation of the economic life of Great Britain, as the nationalisation of the railways
."

I love that last sentence especially, and it's one of those cases where you wish Keynes had lived longer than he did. He simply had no use for the wave of nationalizations that washed over Britain in the mid-20th century - the nationalizations that disturbed Hayek so much. I wish more of this had made its way into the General Theory. The need for the socialization is clear in both. The doubts about central planning and the state are there in both. But people still think of state socialism when they read those passages of the General Theory because we've been hard-wired to associate "socialization" with "socialism". How depressing is that? Keynes can't talk about any sort of social action without people thinking of socialism - even when he denigrates state socialism in the very same passage. Anyway - in addition to denigrating state socialism I wish he talked more about joint stock companies in the General Theory as well. It would have helped to clear a lot of things up. Keynes also regularly notes that different solutions are appropriate to different societies - I imagine he would say that lot of the public corporations he personally found appropriate for Britain in the 1930s might not be appropriate for America or even for Britain in the 2010's. The point is clear on the socialization of investment, though - he is least enthusiastic about state ownership, most enthusiastic about complete private ownership by joint-stock companies, and willing to contemplate public corporations. Needless to say, that's not socialism and I personally think it's a stretch to call it corporatism (but perhaps that could apply).

I'll end with a passage a little further down that has some externality thinking to it:

"We must aim at separating those services which are technically social from those which are technically individual. The most important Agenda of the State relate not to those activities which private individuals are already fulfilling, but to those functions which fall outside the sphere of the individual, to those decisions which are made by no one if the State does not make them. The important thing for government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all."

12 comments:

  1. Keynes advocated, in some form or another, the state to organize and influence economic matters. In a more direct sense, his philosophy amounts to little more than public-private "partnerships" and state oversight.

    I wouldn't call Keynes a socialist, but he IS a statist (one who actively seeks to use the political machine to advance personal goals for society). The fact that Keynes offers substantial rationalizations for such state involvement, and the fact that many many economists follow him on such matters, are more than enough for me to heartily dislike his whole philosophy.

    If someone were to come up to me and tell me they had a plan to run an economy along the lines offered by Keynes, I would consider them a borderline socialist (in the economic, not moral/cultural sense).

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  2. Mattheus -
    What non-anarchist is not a statist by that definition?

    And if there is such a non-anarchist who is not a statist, what the hell is the point of the state for them if not to do that? Why bother with a state if you're not going to use it to advance some goal for society?

    And if by "statist" you just mean someone that countenances the existence of a government, why would you choose a term that most other people consider synonymous or at least closely related to "fascist".

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  3. Also... what exactly do you mean by "a plan to run an economy"?

    That seems conveniently vague.

    He has a plan to manage interest rates: a big deal certainly, but it doesn't even begin to approach socialism.

    Maybe a few select public-private partnership. Utilities is one that he mentions in this chapter of the book for example. OK - not necessary, but there are these network/scale economy arguments that people put forward.

    Other than that... what is he "running" exactly? Keynes makes a piss-poor socialist if you ask me.

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  4. Let's be clear on this Daniel, in educated circles statism has some particular meanings and it means more than simply being something other than an anarchist.

    Ex.: One can easily be a minarchist and oppose dirigisme at the same time.

    This argument of yours is pretty weak.

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  5. The best terms to use re: Keynes was are cartelist and state capitalist; ideologies which have been shown to be rather threadbare, wanting and enemies of human freedom.

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  6. Gary - I am concerned with how Mattheus uses it for precisely the issues you raise.

    You comprehension of my point is weak.

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  7. My comprehension skills are fine.

    You show your cards with this statement:

    "...why would you choose a term that most other people consider synonymous or at least closely related to "fascist".

    Most other people who use the term in any deliberate sense do not view it this way; they view it as descriptive of a constellation of notions that take in terms like state capitalism, state socialism, etc. Keynes very easily falls into the concepts associated with the term statism since he advocated any number of state owned enterprises, economic planning generally, etc.

    Now, one variant of statism is more extreme than other variants, and it is a kin to fascism - but that is no different than using the term "nationalism" to describe someone without meaning the extreme nationalism of say the Nazis or even the miler notion of "little england."

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  8. My understanding of statism specifically incorporates state ownership or direct management of industry. It's not just any government role in the economy. Keynes explicitly rejected state ownership.

    It's certainly understood as a heavy management of the economy and regularly associated with fascism/corporatism. It's also associated with - as Gene points out recently - the view of the state as a deity or personification of the people.

    This simply isn't Keynes.

    Now - all of this is beside the point because I was addressing the definition that Mattheus provided, and his definition seemed to encompass everyone but anarchists.

    That's my last word - I'm not going to go on ad infinitum with you over this.

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  9. If we could bring this back to Keynes on joint stock companies and what he meant by "the socialization of investment" that would be fantastic.

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  10. Keynes may have explicitly rejected such, but the implications of his argument does not (Roger Garrison on this):

    "As with almost every other aspect of Keynes's writing, the phrase 'socialisation of investment' is in for some interpreting. What did Keynes have in mind? While no one believes that he was thinking of outright state ownership of the means of production, other possible meanings involve further questions that neither Keynes nor his followers have adequately addressed. It is clear in his discussion following the call for socialized investment that Keynes is concerned with the 'volume' and not the 'direction' of employment. Keynes argues as if the government--or rather, 'forces outside the classical scheme of thought'(6)--could control the volume without affecting any other aspect of the market economy. What sort of powers would government have to wield to be able to exert such a force? And how would the quality of entrepreneurial decisions be affected if entrepreneurs had to anticipate the use--and possible misuse--of such powers? There are no answers to these questions that put socialization in a favorable light. The simple fact is that the conceptually distinct aspects of 'volume' and 'direction' as applied to employment or output are governed by a single set of market forces. Joan Robinson, who recognized the actual unity of these market forces but favored a more wholesale form of socialization, chided Keynes for even wanting to control volume without controlling direction. Direction, in her view, needed some controlling, too.(7)"

    http://www.auburn.edu/~garriro/r22davis.htm

    He who pays the piper calls the tune in other words.

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  11. Daniel,

    Mattheus -
    What non-anarchist is not a statist by that definition?


    Technically, all non-anarchists are statists because they all seek to use the state to engage in "social engineering" to some extent. Does that mean Mises and Hayek were statists? It does (I'm reminded of an anecdote at the Mises Institute last year when a guy wearing a Rothbard shirt wouldn't shake hands with a guy wearing a Mises shirt because he doesn't shake hands with 'statists.' The fact that there's some truth to that exchange is telling).

    Now, does that mean that if we're all statists (excluding the anarchists), that there is no categorial difference between Mises and Hitler (in that respect)? There's not; there's a difference in degree. And that's all I've been suggesting.

    In theological circles, for an example, technically everyone is a sinner. Does that mean that all sinners are equal? Or can some people sin "less" than others? The fact that all non-Jesus's were sinners does not discount the truth that a murderer has sinned to a greater degree than a child who died as an infant.

    And if there is such a non-anarchist who is not a statist, what the hell is the point of the state for them if not to do that? Why bother with a state if you're not going to use it to advance some goal for society?

    I agree.

    And if by "statist" you just mean someone that countenances the existence of a government, why would you choose a term that most other people consider synonymous or at least closely related to "fascist".

    I feel fascism is connected to a specific type (and degree) of statism, but not statist completely.

    I have to agree with Gary on this: in educated circles statism has some particular meanings and it means more than simply being something other than an anarchist.

    Obviously, you're playing devil's advocate (because I'm sure you understood this anyway). But it stands to reason that the type and severity of statism that Keynes argued, fought, wrote, and rationalized for is generally a higher degree than most other statists.

    Also,

    Other than that... what is he "running" exactly? Keynes makes a piss-poor socialist if you ask me.

    Interest rates are pretty important...

    I mentioned that I wrote socialist in an economic sense (state management, "public" ownership, socialization of costs) and NOT socialist a la Fourier and Lenin.

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  12. "In fact, we already have in these cases many of the faults as well as the advantages of State Socialism."

    What are the "advantages of State Socialism" as defined by either you or Keynes, Kuehn? Would you link to a list or provide one here?

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