Wednesday, September 2, 2015

Things Keynes did not say


Bill Mitchell:
In Chapter 24 of The General Theory of Employment, Interest and Money, Concluding Notes on the Social Philosophy towards which the General Theory might Lead, John Maynard Keynes confronted the issue of the “arbitrary and inequitable distribution of wealth and incomes” in capitalist economies. The argument he advances in that Chapter of his 1936 book contains guidelines for the progressive left that some just cannot seem to grasp. In short, governments (as our agents) do not need the savings of the rich to ensure that society prospers.

Wow. I never quite got that from Chapter 24.

I stopped reading Bill Mitchell's post at that point, and went back to Keynes. I re-read the whole of Chapter 24, with Mitchell's statement in mind. I found something relevant to Mitchell's opening. Turns out, it is the same that Bill Mitchell quoted. I shorten it and split it in two, here:
Since the end of the nineteenth century significant progress towards the removal of very great disparities of wealth and income has been achieved through the instrument of direct taxation .... Many people would wish to see this process carried much further, but they are deterred ... partly by the fear of making skilful evasions too much worth while and also of diminishing unduly the motive towards risk-taking, but mainly, I think, by the belief that the growth of capital depends upon the strength of the motive towards individual saving and that for a large proportion of this growth we are dependent on the savings of the rich out of their superfluity.

In other words, we have sometimes used taxation to reduce the inequality of income. But not often and not much, because we thought the economy needed the saving of the rich in order to grow.

We thought wrong, Keynes says.
... But ... we have seen that, up to the point where full employment prevails, the growth of capital depends not at all on a low propensity to consume but is, on the contrary, held back by it... Moreover, experience suggests that in existing conditions saving by institutions and through sinking funds is more than adequate, and that measures for the redistribution of incomes in a way likely to raise the propensity to consume may prove positively favourable to the growth of capital.

In other words, Keynes says he has shown that the economy does not need the saving of the rich in order to grow. (Except in conditions of full employment, of course.)

Okay. So I think, when Bill Mitchell says "Governments do not need the savings of the rich" (in the title of his post) I think he means the economy does not need the savings of the rich. That makes sense to me.

From the full title of Bill Mitchell's post

Governments do not need the savings of the rich, nor their taxes!

I originally thought he meant that governments can just print the money they need; they don't have to get it by borrowing or by taxation. My impression of Mitchell is that he is liable to say that. Keynes, of course, most definitely did not say that.

//

Mitchell follows his Keynes quote with these remarks:

In other words, the high saving of the rich actually undermine the capacity of the economy to achieve full employment and if they spent more then the government would not have to spend as much to achieve that aim.

Yeah, exactly.

And these remarks:

But the idea that these savings were essential to fund government spending and could be accessed by taxing the rich was clearly understood by Keynes to be flawed reasoning.

Oh. Mitchell *is* thinking in terms of taxing the saving of the rich "to fund government spending", and how this is not necessary. And he is putting those words into the mouth of Keynes -- things Keynes did not say.

13 comments:

Jazzbumpa said...

I've see the idea put forth - don't remember where - that governments don't need taxation at all and can simply run on deficits.

Evidently Mitchell believes that is true.

I have no idea. Seems awfully extreme to me.

But Mitchell and Keynes both seem to believe in the idea of taxation to reduce wealth disparity.

I am in full agreement.

Cheers!
JzB

geerussell said...

"I've see the idea put forth - don't remember where - that governments don't need taxation at all and can simply run on deficits."

That's a strong signal the idea may well be apocryphal, something that MMT critics tend to say and echo among themselves with no primary source. Right up there with "deficits don't matter".

I don't have a link handy from Mitchell but it's probably reasonable to use Randall Wray's piece here as a proxy: What are taxes for? The MMT approach. In short, governments do need taxation but not for revenue. Taxes serve to drive demand for the currency; to regulate aggregate demand/inflation; to alter behavior (as in "sin" taxes); to alter distribution.

Following from that: "tax rates should be set so that the government’s budgetary outcome (whether in deficit, balanced, or in surplus) is consistent with full employment."

The Arthurian said...

Absence of evidence: "I've see the idea put forth - don't remember where ..."

Evidence of absence: "That's a strong signal the idea may well be apocryphal ..."

But absence of evidence is not evidence of absence. Certainly not "a strong signal".

//

Geerussell, your claim that "governments do need taxation but not for revenue" does not seem a relevant defense of Bill Mitchell's view that governments "do not need the savings of the rich to ensure that society prospers."

Greg said...

Here is Mitchell himself elaborating on his points! No need to guess.

Enjoy everyone!


https://www.youtube.com/watch?v=4OVAROe3gW4

geerussell said...

But absence of evidence is not evidence of absence. Certainly not "a strong signal".

That's why I didn't just stop there but went on to offer positive statements to the contrary as evidence the premise is not a position held by MMT economists.

Here's another, from Mitchell saying the same thing as Wray: "Again, nothing could be clearer. National policy priorities are the central question. Then the taxation serves as part of an overall functional finance policy package to advance these goals as best as the government can."

Strong signal.

Geerussell, your claim that "governments do need taxation but not for revenue" does not seem a relevant defense of Bill Mitchell's view that governments "do not need the savings of the rich to ensure that society prospers."

The claim wasn't offered as a defense of that view. It was offered in contradiction of "governments don't need taxation at all".

The Arthurian said...

Gee, Jazz didn't bring up the idea that "governments don't need taxation at all".
He brought up the idea that "governments don't need taxation at all and can simply run on deficits."

Mitchell says it is "flawed reasoning" to think taxes are "essential to fund government spending". That is almost identical to the idea Jazzbumpa brings up: deficits to fund government spending. See?

You change Jazz's meaning by bringing in topics other than the funding of government spending. It's a shoddy argument. Very well done, but shoddy.

Oh, and the worst thing is that Mitchell tries to put his own words into the mouth of Keynes.

geerussell said...

Obviously there's some room to interpret there, given that you re-worded his statement. In good faith as you understood it, I'm sure, but from the bolded quote to your italicized re-write isn't quite the same. Maybe I changed Jazz's meaning, maybe you did, maybe neither of us is correctly speaking on his behalf. At any rate, the information I added specifies in more detail just what Mitchell (and MMT more generally) claims in terms of taxation and deficits. I guess we can agree to disagree whether adding more detail is a shoddy practice :)

The Arthurian said...

Fortunately yes, Jazzbumpa can still interpret his own thoughts for us. Unfortunately, Maynard Keynes cannot.

Auburn Parks said...

Art-

Did you delete my comment? If so, then why?

The Arthurian said...

off topic

The Arthurian said...

off topic and galactically stupid

Auburn Parks said...

Oh and another thing. This statement of yours is completely wrong:

"Except in conditions of full employment"

Even when the economy is at full employment taxing the savings of the rich does not provide much room for continued fiscal expansion because of the low propensities to consume of the wealthy.

Iow even at full employment you couldn't spend an additional $100 b on infrastructure by taxing the top.1% an increased $100b and have a zero impact.on inflation as the rich never consume enough real goods and services.to increase cpi on their own

Removing savings of the wealthy does not open up room for.more spending elsewhere.

Spending has an inflationary bias
Saving has a deflationary bias

Yet another obvious and correct statement.

The Arthurian said...

Auburn Parks: "Oh and another thing. This statement of yours is completely wrong: 'Except in conditions of full employment'"

Auburn, that wasn't my statement. It was what Keynes said. First I quoted it directly: "up to the point where full employment prevails". Then I paraphrased it. You quoted the paraphrase. But the thought was not mine. It was Maynard's.

You should really practice your reading skills.