Comments on economics, mystery fiction, drama, and art.

Wednesday, February 15, 2012

Keynes was one smart dude

Although people often don't realize it:

"We cannot, as a community, provide for future consumption by financial expedients but only by current physical output. In so far as our social and business organisation separates financial provision for the future from physical provision for the future so that efforts to secure the former do not necessarily carry the latter with them, financial prudence will be liable to destroy effective demand and thus impair well-being...."

(I found this via Matt Yglesias, who sent me off to a talk by Doug Henwood). 

The point, though, needs to be made over and over again.  Amassing "financial assets" works only if the real productive capacity of a society expands over time.  If it does not, then when I acquire claims to future production, then I must acquire them at the expense of someone else.  Only investment in real capital (including human capital) expands the pie.