Quigley and Keynes

It took longer than I expected to get my thoughts together for this essay. I was bingeing Lilyhammer and couldn't look away. 

 

Discussing the costs of production, Carroll Quigley writes (page 140): 

These costs, including profits for entrepreneurs, have a double aspect. On the one side they represent the costs of producing the goods, and ... on the other hand, these costs represent the incomes of those who receive them...

I remember that thought as Charles Schultze expressed it:

Prices and wages have a dual nature when considered in the aggregate: they are costs to buyers and incomes to sellers.

Schultze used that thought in relation to inflation:

Thus an increase in the general level of prices does not automatically mean a reduction in the quantity of goods and services demanded...

Quigley uses the thought in relation to the way our economic system works, given our natural inclination to save part of our income (p.141):

This whole relationship means that our modern economic system cannot produce and consume what it produces unless it also invests (that is, expands).

That's significant. It means we could not survive as a stable, non-growing society where we produce output and then consume it (but do not invest and grow). Our inclination to save out of income would mean we consume a little less than we produce. If we consumed less, our businesses would produce less and we would earn less income as a result.

It's a vicious circle, a self-sustaining feedback loop: We buy less, so we produce less, so we have less income, so we buy less. And the cycle repeats. For Quigley, this explains the decline of civilization when the "surplus-creating instrument" (page 137) is capital accumulation, as in our civilization.

It never occurred to me before, that we could not survive as a no-growth society. That's pretty damn interesting. But actually, it's the "civilization is a shark" thing: If it doesn't keep moving forward, it will die.

 

Quigley (page 139) says the nature of the "organizational stresses and tensions arising from a decrease in the rate of a society's expansion can be seen most clearly in contemporary Western civilization." What he presents next sounds like an economics discussion. It is. Quigley's topic, however, is not the economy. His topic is civilization and its decline.

Quigley's explanation is rather long, but you'll notice that it ends with the "significant" sentence quoted above:

If we look, for a moment, only at the flow of consumers' goods, we see that this flow of goods is offered for sale at a price that, by just covering the costs of the goods, is just equivalent to the purchasing power distributed to the economic community as incomes available for buying these goods. But, of course, some incomes are saved. These savings reduce the flow of purchasing power below the level of the flow of consumers' goods at prices sufficient to cover costs of these goods. Thus there is not sufficient purchasing power available to buy the goods being offered at the price being asked, and either goods must go unsold or prices must fall, unless the money which was held back as savings appears in the market as purchasing power for consumers' goods. Traditionally, this reappearance of savings as purchasing power in the market occurred through investment—that is, as expenditures for the factors of production to be used to make capital goods. This process provided the purchasing power needed to permit the flow of consumers' goods to go to consumers because investment distributed rent, salaries, wages, interest, profits, and such to the community to form incomes and thus available purchasing power but did not demand purchasing power from the economic community because the producers' goods created by these expenditures were not offered for sale to consumers, as consumers goods were, but, if sold at all, were merely exchanged for the savings of investors. This whole relationship means that our modern economic system cannot produce and consume what it produces unless it also invests (that is, expands).

Quigley explains why our civilization cannot survive unless it grows. As noted above, his explanation is that people save part of their income, and spend less in total than producers must recoup to cover the cost of production. 

Another source of spending is needed, to boost consumer income and consumer spending enough that producers can sell all they produce. "Traditionally", Quigley says, producers would invest enough to make up the difference. The investment spending would boost income and boost consumer spending enough to clear markets of the otherwise unsold goods. So the economy would maintain equilibrium, and avoid a downward spiral.

I have not found him saying this in so many words, but Quigley's idea is that if we cannot maintain economic growth over the long term, the economy will decline and so will civilization.

 

Here is a bullet-point summary of Carroll Quigley's paragraph:

• Work creates income and output in equal measure.
• Therefore, income and output are equal.
• So there is enough income to purchase all of output.
• But people sometimes save money.
• So there is not enough consumer spending to buy all of the output.
• If business investment spending makes up the difference, everything is copacetic.
• If not, it's all downhill from here.

Saving reduces demand, and investment of the saved funds restores demand. If these thoughts sound familiar, they should. Keynes said something similar. Very similar. I have to think that Quigley picked up the idea from Keynes. 

What did Keynes say? Wikipedia's article on Keynesian economics has a great short summary. First, they define terms:

Saving is that part of income not devoted to consumption, and consumption is that part of expenditure not allocated to investment...

Then they put those terms to use, to pinpoint what Keynes said:

Once he rejects the classical theory that unemployment is due to excessive wages, Keynes proposes an alternative based on the relationship between saving and investment. In his view, unemployment arises whenever entrepreneurs' incentive to invest fails to keep pace with society's propensity to save...

Keynes sees imbalance between saving and investment as the problem. Quigley identified the same problem. 

They do seem to have different conclusions: Quigley focused on the survival of civilization, and Keynes on unemployment. But Keynes was writing during the Great Depression, when unemployment was as high as 25% and a focus on that problem was obviously required.

Keynes focused on the economy, not on civilization. But he also said this about his view:

I defend it ... as  the only practicable means of avoiding the destruction of existing economic forms in their entirety...

Far as I'm concerned, Keynes was saying that if we don't fix this problem it'll be the end of life as we know it. And now it sounds like Quigley's topic: the decline of civilization.

Anyway, if you see it as I see it -- the economy drives civilization -- then the decline of the economy brings on the decline of civilization. I think we watched it happen over the past 40-50 years.

Carroll Quigley might not agree that the economy drives civilization. His focus was civilizations, plural.  Beginning on page 137 he writes:

This surplus-creating instrument does not have to be an economic organization. In fact, it can be any kind of organization, military, political, social, religious, and so forth. In Mesopotamian civilization it was a religious organization, the Sumerian priesthood...

I assume Quigley is right. It doesn't have to be an economic instrument. However, in the case of our civilization, it is an economic instrument. If I was writing this in the Mesopotamian era, my argument might have been that the Sumerian priesthood drives civilization. Doesn't matter. In the here-and-now, our surplus-creating instrument is economic, our problems generally are economic or have economic roots, and the solution will certainly be an economic solution. And if we don't find that solution, the cause of the fall of civilization, this time around, will also be economic.

One more look. Quigley and Keynes on the imbalance between saving and investment:

Quigley	Keynes
But, of course, some incomes are saved. These savings reduce the flow of purchasing power below the level of the flow of consumers' goods at prices sufficient to cover costs of these goods.	The psychology of the community is such that when aggregate real income is increased aggregate consumption is increased, but not by so much as income.
Thus there is not sufficient purchasing power available to buy the goods being offered at the price being asked, and either goods must go unsold or prices must fall, unless the money which was held back as savings appears in the market as purchasing power for consumers' goods.	Hence employers would make a loss if the whole of the increased employment were to be devoted to satisfying the increased demand for immediate consumption.
Traditionally, this reappearance of savings as purchasing power in the market occurred through investment—that is, as expenditures for the factors of production to be used to make capital goods.	Thus, to justify any given amount of employment there must be an amount of current investment sufficient to absorb the excess of total output over what the community chooses to consume when employment is at the given level.

The three steps described by both Keynes and Quigley in the table above are these:

• saving creates an imbalance
  
• the imbalance leads to decline
  
• investment can restore balance.
  

The excerpts from Quigley appear on page 140 of The Evolution of Civilizations.
The excerpts from Keynes appear in Chapter 3 of the General Theory, section ii.

Keynes's focus is maintaining a high level of employment to keep the economy growing. Quigley's concern is maintaining a high level of investment to keep the civilization growing. But it's the same concept, really, and the same story: Healthy economic growth sustains the growth phase of civilization, and economic decline is the leading economic indicator of the decline of civilization.

I'm not saying the economy is the only cause of the fall of civilization. But I'm screaming at the top of my lungs that it has to be on the list of possible causes -- and first on the list.

"When a country is growing in wealth somewhat rapidly, the further progress of this happy state of affairs is liable to be interrupted, in conditions of laissez-faire, by the insufficiency of the inducements to new investment."  Keynes, chapter 23