Rentiers and Government
A few weeks ago Paul Krugman noted that our policies today seem to be directed solely for the benefit of the Rentier class, those who make money from rents and/or lending of money. Since then this observation has been the source of a number of comments, including further discussion on Krugman's blog and others as well. See for example here, here, or here. I think this observation that we have now long since given an inordinate share of political power to the rentier class and that there is a widespread, and deeply misguided, view that these are the people one's who should lead society. Perversely, the view that these people should be leading in matters of economics is tied to two ideas, both of which are at odds with reality. Namely that a) these rentiers, being extremely wealthy, are the most productive people and b) that supporting their interests is consistent with the concept of small government.
I am mostly interested in discussing point b) here, but let me just say a few words with regard to a). The things we need as a society, the reasons we have for being concerned with economics, can be fairly simply stated. Food needs to be grown, tools need to be manufactured, clothing produced and raw materials extracted, and those things need to be distributed about the population from source to consumer. In short useful goods and services need to be produced and then supplied to consumers. As long as that is going on a society will be prosperous. The mechanism we have as humans to facilitate these essential activities is to have currency flow in the opposite directions. But be clear, if the goods and services were to continue flowing without any currency moving at all (how that would be managed I cannot imagine, but the point remains) the society would continue to be as prosperous as ever. Were the opposite to occur, currency continue to flow but no goods and service be generated or supplied, the society would soon decay to starvation and ruin. The one flow is essential, the other facilitates the essential flow, but is not itself essential. Indeed, societies existed for tens of thousands of years before anyone came up with the idea of currency. Now in today's world currency, and the flow of currency, is necessary and the rentier and financial class provide a vital service in assisting the flow of currency which in turn keeps up the flow of goods and services, so we can no longer do without it. But it is not a class that is productive. It assists the productivity of those who are productive. Basing policy on the productivity of the rentier class, especially while denigrating the productivity of the productive classes, is seriously unwise.
But point b), as I said, was my main interest, as its significance seems to be missed by most others. Specifically, it seems to me that the rentier class and the financiers are the people in this world most dependent upon government. This is a class that cannot exist without the assistance of government, yet we perversely insist on minimizing the degree to which government might interfere with their affairs. They have no affairs but by the grace of government. And yet the role of government, the degree to which this class needs government, seems to be universally ignored.
If I go back to a discussion by Adam Smith on the role of various interests in the economy I can find this quote, where he is discussing those who's income comes from the rent of land:
[renters] are the only one of the three orders whose revenue costs them neither labour nor care, but comes to them, as it were, of its own accord, and independent of any plan or project of their own.But the revenue does not, of course, simply come to the renter of its own. Someone must be doing something, otherwise the person, or persons supplying the revenue would not bother. And of course, for the renter, and likewise for the financier, the revenue comes to him because the government will enforce the agreement for him. The government supplies a part of the renters (or financiers) business as does the billing department for your electric power company. If the billing department was not there doing its work, the power company's revenue would soon cease.
No small part of our current situation is caused by the odd insistence on the supposed champions of small government insisting that government must supply these services to these business and it should do so for free. One of the best ways to shrink the percieved intrusion of government would be to have these services made more expensive (that would be raising taxes) rather than making them free.