I have been dipping into Brett Christophers’ Rentier Capitalism: Who Owns the Economy and Who Pays for It? Economists should be warned that his use of the term ‘rentier’ is ‘heterodox’ (his term). I have no difficulty with Humpty-Dumpty’s ‘When I use a word, it means just what I choose it to mean – neither more nor less.’ but the book is a challenge to a trained economist, because one keeps having to remind oneself that Christophers’ meanings are different.

A consequence of his casualness with orthodox economics is that Christophers misrepresents Keynes; this is what this note is about. In The General Theory Keynes refers to ‘entrepreneurs and rentiers’, distinguishing between the returns to ‘risk’ and the returns to ‘waiting’ which traditionally are described as ‘profit’ and ‘interest’. Interest, then, is a payment to those who defer consumption. (Historically ‘waiting’ was called ‘abstinence’ but the term went out of fashion because it seemed odd to say that a rich bloated capitalist was ‘abstaining’.)

Christophers gets it quite wrong when he writes ‘Keynes … famously called for the euthanasia of the “functionless investor” that was the financial rentier.’ Keynes was more subtle. He did not ‘call’ for the euthanasia of the rentier but predicted it:

[when] capital has become sufficiently abundant. … I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work. And with the disappearance of its rentier aspect much else in it besides will suffer a sea-change. It will be, moreover, a great advantage of the order of events which I am advocating, that the euthanasia of the rentier, of the functionless investor, will be nothing sudden, merely a gradual but prolonged continuance of what we have seen recently in Great Britain, and will need no revolution.

His mechanism for the euthanasia is that capital would become so ‘abundant’ that opportunities for investment would become so limited that the rate of interest would fall to zero and the rentier class would disappear.

It is a matter of record that Keynes’ 1936 prediction was been wrong. (He joins a vast range of the profession, from Malthus and Ricardo to Schumpeter, who made similar stagnationist predictions.) The reason he was wrong is that new technological innovations created additional requirements for capital investment so that capital has not become relatively abundant. This shortage of savings meant that there was a premium for waiting.

(Part of my interest in this question is that if we enter a period of secular stagnation as a consequence of markedly reduced tchnological innovation then the stagnationist theory becomes relevant because interest rates will fall to zero. But let’s keep to Christophers’ concerns.)

Does this mean that Christophers’ book is irrelevant? The real focus for me was its drawing attention to monopoly capitalism. Keynes pays little attention to monopolies – mainly mentioning them in the context of price stickiness – in part because the work of Edward Chamberlain and Joan Robinson was just underway when he was writing. Christophers is not the first to focus on monopoly capitalism – strangely he does not mention Paul Sweezy and Paul Baran’s 1966 book Monopoly Capital: An Essay on the American Economic and Social Order.

Here is my rough take on the Christophers’ story of monopoly capitalism if we ignore some of his casual economics.

While technological innovation and creativity are (often) rewarded by the market (there may be public intervention such as intellectual property rights in order to stimulate them), those who command monopolistic power are also rewarded by ‘super-normal profits’. The sources of this power include innovation and creativity but it may also arise temporarily from being first mover in a competitive market. But another major source is genuine (permanent) monopolies arising from public licensing (the East India Company), barriers to entry and natural monopolies (common carriers). There also seems to be a phenomenon where oligopolies generate supernormal profits. (Any others?)

What happens to these supernormal profits? Initially, they go to the monopoly owners, but eventually the owners sell the profit flow to what Christophers calls ‘rentiers’ (most notably by IPOs). While these rentiers, in his definition, contribute to the economy by ‘waiting’, some take on some risk to obtain a higher return. (Another group of rentiers who don’t quite fit into the model are superannuitants whose pensions come from the government coffers.)

So Christophers is challenging the standard economics model which explains factor prices in a competitive economy. Chapter after chapter reminds us that often the reality is of monopolistic markets and the like which are far from temporary. From this perspective the book provides orthodoxly trained economists with a valuable and sobering service.