Keynesian Economics and Savings

One of the goals of Keynesian economics was to eliminate savings and to encourage consumption in an apparent effort to gain control of government. The idea goes that if there are no savings in an economy1, then there is no private money for investment. Without private money for investment, the government must intervene and provide investment capital. And once the State provides that investment, it now has the power to dictate the conduct and processes of those who need investment capital. In essence, we end up with more socialism.

At present, this is precisely what is currently being played out in Congressional hearings concerning the proposed bailout of U.S. automakers.2

The Failure of the New Economics - An Analysis of the Keynesian Fallacies by Henry HazlittIn 1959, Henry Hazlitt reviewed Keynes’ The General Theory of Employment, Interest, and Money (1936). The following is what Hazlitt wrote concerning Keynes’ depiction of savings:

Here is the General Theory in a nutshell, with its transvaluation of all values. The great virtue is Consumption, extravagance, improvidence. The great vice is Saving, thrift, “financial prudence.”3

There was ample precedence in socialist camps to do away with savings. In 1916, the Fabian Society declared “large savings by a wealthy class have an inherent evil: they increase and perpetuate a functionless, tribute-levying class of rentiers4 , which is already a dangerous element in the State.”5 Then, at the Labour Party Conference in 1923 the Fabians “rejected the concept that private savings increase community national assets.”6

In 1936, Keynes merely echoed the Fabian party line. Here is Hazlitt’s appraisal of Keynesian economics’ impact on savings:

How, then, would Keynes force down interest rates and even the return to the entrepreneur and still get his saving, investment, and production? What he really has in mind, apparently, is seizing the money through taxation and creating forced “investment” through the government. Does my assumption go too far? Then listen to this:

Though this state of affairs [just about enough return to cover cost of capital replacement] would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital.

For the light it throws on the heart of Keynes’s message and on the popularity of his ideas among leftists, this sentence is one of the most revealing in the book. Notice how patronizingly individualism (i.e., individual liberty) is treated. Keynes would graciously allow “some measure of” it. But he insists on “the euthanasia of the rentier.” Euthanasia means painless death. That is, the death of the rentier would be painless to Keynes. There is an old proverb that if you want to hang a dog you must first call him mad. If you want to knock a man down you should first give him a bad name. So Keynes uses the French rentier as a smear word. The rentier is the terrible fellow who saves a little money and puts it in a savings bank. Or he buys a bond of United States Steel, and uses his cumulative oppressive power as a capitalist to exploit the U. S. Steel Corporation.

All this is demagogy and claptrap. It differs from the Marxist brand only in technical detail.7

According to Richard M. Ebeling:

For four decades, from the mid-1930s to the 1970s, Keynesian economics almost monopolized economic policy in the United States and around the world. The “new economics,” as it was called, was going to assure mankind economic stability, full employment, and material prosperity—all through wise government management of monetary and fiscal policy.8

Personal Savings Rate - 1929-2006Given the popularity of Keynesian economics during much of the 20th century, it appears Keynes’ General Theory has had just the impact he expected it would upon society – an elimination of savings and government control of capital.


  1. In 2005, the U.S. savings rate hit negative levels for the first time since the Great Depression and then slightly rebounded earlier this year. See “Facts on U.S. Policy – U.S. Savings Rate”. 10 October 2006. Hoover Institution. 21 November 2008 (Ed. – This article no longer appears on at; and, Hennigan, Michael. “Global Economy – U.S. Savings Rate Rises from Close to Zero in 2007 as Housing Wealth Falls“. 11 November 2008. Finfacts Ireland. 21 November 2008.
  2. Dems Want Automakers to Show Bailout Spending Plan“. 20 November 2008. CNN. 21 November 2008.
  3. Hazlitt, Henry. “Failure of the ‘New Economics’: An Analysis of the Keynesian Fallacies“. Princeton, New Jersey: D. Van Nostrand Company, 1959. 127. For a PDF of this book, see Failure of the ‘New Economics’: An Analysis of the Keynesian Fallacies. Ludwig von Mises Institute. 21 November 2008.
  4. A rentier is a person whose income consists primarily of fixed “unearned” amounts from rent or bond interest. It is a term first made popular by David Ricardo to describe the money earned by landowners. From a socialist point of view, this money is best used by the state for its own purposes since rentiers are deemed unwise in using this money for productive purposes.
  5. Webb, Sidney. ed. “How to Pay for the War“. London: Fabian Society – Fabian Research Department, 1916. 270. For a PDF of this book, see How to Pay for the War. American Libraries. 21 November 2008.
  6. McCarran, M. Margaret Patricia. Fabianism in the Political Life of Britain: 1919-1931.” Chicago: The Heritage Foundation, 1954. 54.
  7. Hazlitt, Henry. “Failure of the ‘New Economics’: An Analysis of the Keynesian Fallacies“. Princeton, New Jersey: D. Van Nostrand Company, 1959. 379-380.
  8. Ebeling, Richard M. “Henry Hazlitt and the Failure of Keynesian Economics“. November 2004. Foundation for Economic Education. 21 November 2008.

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  1. Michael’s avatar

    This is very good. Thanks.

  2. Greg’s avatar

    Thanks Michael, I hope it was helpful.

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