The Rentier — The Rent, Plate ix

The volume has followed rent off the land and into every corner where scarcity meets ownership, and one corner it has not yet entered is the largest of all: the ownership of capital. The man who owns capital and lives by lending it — the rentier, in the old word, the coupon-clipper who works at nothing and is paid all the same — collects an income the volume's whole argument marks as suspect. For what is interest, the rentier's reward? The textbooks of Keynes's day called it the wage of waiting, or the fruit of capital's own productivity. Keynes, in the closing pages of his great book, called it what the rent volume would recognize at once: a scarcity-price, the rent of capital, paid for no service but ownership. And having named it so, he drew a conclusion none before him had dared. The plate's question is his: if the rentier adds nothing, why is he paid at all — and what would it take to be rid of him?

The first half of the answer makes interest a rent like any other. Capital earns a return, Keynes argued, not because its owner has done anything, and not chiefly because capital is productive — the spade is productive, but its productivity belongs to the spade, not to the man who happens to hold its title. Capital earns a return because it is scarce: there is less of it than its uses would absorb at a price of zero, and that scarcity, as the whole volume has taught, throws off a surplus that flows to whoever owns the scarce thing. Interest is that surplus. The rentier stands to capital exactly as the old landlord stood to the soil — the passive holder of a scarce thing, drawing a toll for access to it, contributing to its yield not one farthing's worth of effort. The wage of waiting is a flattering name for the rent of a fortune.¹

1. Interest is a rent. Capital earns a return not because its owner acts, nor chiefly because capital is productive, but because capital is scarce, and scarcity throws off a surplus to whoever owns it, as land's does. The rentier stands to capital as the old landlord to the soil: a passive holder drawing a toll for access. The wage of waiting is a flattering name for the rent of a fortune.

The second half is the daring part, and it follows from the first with a cruel simplicity. If interest is merely the price of capital's scarcity, then end the scarcity and you end the interest — and with the interest, the rentier. And capital's scarcity, unlike land's, is no fact of nature but an accident of history, curable by accumulation. Land cannot be manufactured; capital can, and is, every time an economy invests more than it consumes. Let a society save and build at a good pace for a generation or two, Keynes reasoned, and capital grows so abundant that its marginal yield, bid down by its own plenty, can no longer support a positive rate of interest. At that point the rentier's income simply dries up. Not seized, not taxed away, not abolished by decree: it evaporates, because the scarcity it fed upon is gone. Keynes gave this gentle ending a startling name, the euthanasia of the rentier, and meant the word precisely — a painless death, the quiet retirement of the functionless investor as capital becomes as free as air.²

2. The daring half: if interest is only the price of scarcity, end the scarcity and you end the interest, and the rentier with it. Capital's scarcity, unlike land's, is curable — capital is manufactured whenever an economy invests more than it consumes. Save and build for a generation and capital grows so abundant its marginal yield can no longer support a positive interest, and the rentier's income evaporates, not seized but dissolved. Keynes called it the euthanasia of the rentier.

⁂

Why euthanasia, and not expropriation? Because Keynes thought the end both gentle and just, and wished the word to carry both. Gentle, because no one is robbed: the rentier is not stripped of his wealth but merely finds it ceasing to breed, as a pond ceases to rise when the spring that fed it runs dry. Just, because the income that vanishes was never earned. The rentier is, in Keynes's flat phrase, functionless — the productive work of capital would go on exactly as before in a world without him, the machines and buildings still standing and yielding, only the private toll on their scarcity gone. To retire the rentier is therefore to remove an unearned claim without touching a single productive act: the rare reform that costs the economy nothing it values and relieves it of something it does not need. The owner who merely holds is shown the door, and the work of the held thing continues without him.³

3. Why euthanasia, not expropriation? Keynes thought the end gentle and just. Gentle: no one is robbed; the rentier's wealth merely ceases to breed, as a pond stops rising when its spring runs dry. Just: the income never was earned. The rentier is functionless — capital's work would continue without him, the machines still yielding; only the private toll on their scarcity is gone.

Yet the rentier is still with us, and the prophecy's failure is as instructive as its logic. Three things have stayed the euthanasia. First, capital has refused to glut: population grows, technology keeps inventing hungry new uses for capital, and consumption swells, so demand for capital runs ahead of its accumulation and the scarcity persists. Second, there is a floor beneath the rate of interest that abundance alone cannot break through — for men demand a premium to part with money they might instead hold safe and ready to hand, as Keynes himself had argued elsewhere, and that premium keeps the rate above zero however plentiful the capital. And third, the rentier is not passive in his own defense: those who live by what they hold are precisely the people with the means and the motive to resist the cheap money and the heavy investment that would dissolve their income, and resist they have. The euthanasia was blocked, in the end, by economics and politics together.⁴

4. Three things stayed the euthanasia. First, capital refused to glut — population, technology, and consumption keep demand for capital ahead of accumulation. Second, a floor beneath interest abundance cannot break: men demand a premium to part with money they could hold ready, keeping the rate above zero. Third, the rentier defends himself, resisting the cheap money and heavy investment that would dissolve his income.

And that resistance is the plate's last and most general lesson, the one that carries it back to the volume's heart. If the rentier could be euthanized by abundance and is not, it is because abundance is not allowed to arrive — because the holders of a scarcity have every reason to preserve it, and often the power to do so. Here the rent of capital rejoins the rent of everything else the volume has examined: the scarce thing is defended by the one who owns it, who would rather the world stayed short of what he holds than watch his toll dwindle to nothing. Keynes's prophecy and the modern economy of position are thus two faces of one coin — the one imagining scarcity dissolved and the owner retired, the other recording scarcity entrenched and the owner ascendant; and which face turns up is settled not by the logic of economics, which is plain, but by the contest of politics, which is not. The answer to the plate's question follows from all the rest. The rentier is paid because capital is kept scarce; he would vanish if it were made plentiful; and he endures because those who collect a scarcity-rent are rarely so obliging as to let the scarcity end.⁵

5. The last lesson: if the rentier could be euthanized by abundance and is not, it is because abundance is not allowed to arrive — the holders of a scarcity preserve it. The rent of capital rejoins all the rest: the scarce thing is defended by its owner. Keynes's prophecy and the modern economy of position are two faces of one coin — scarcity dissolved and the owner retired, or scarcity entrenched and ascendant — settled not by economics but by politics.