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
