Why capital is still scarce and the economic problem unsolved - Insights from the General Theory

In an essay published in 1930 against the backdrop of the Great Depression, Keynes defended the idea that, thanks to capital accumulation, the economic problem of mankind would be solved or almost so within a century. The evolution of his thinking would later show him more nuanced in this respect. The present article first brings together the key elements of the General Theory relating to the question to provide a structured explanation of why productive capital remains scarce in the long run. For the economic problem is linked to capital scarcity in several ways. Firstly, because it gives its owner the privilege of deducting from the national income, to the detriment of the share due to labour, more than the remuneration that would be sufficient for capital to be allocated to production if it were simply not scarce. Secondly, because by making capital more expensive, this rent weakens the incentive to invest and effective demand, which on the one hand weighs on economic growth and employment, and on the other pushes back the horizon beyond which capital would cease to be scarce. The analysis then highlights the interaction between the economic policy measures required to achieve full employment in the short run and those needed to achieve ‘full investment' in the long run – an interaction that is generally overlooked due to the exclusive focus on the lack of effective demand. In doing so, the article unveils overlooked yet essential features of the General Theory regarding money and macroeconomic policy over the long run.