Clarence Ayres: the economist whom Piketty and Mankiw should have read

Clarence Ayres (1892-1972) wrote things about the measurement of capital, guaranteed income, the deflationary tendencies of capitalism  and capital export related export-import booms and busts (Germany-Spain!) that are highly relevant today. It’s almost eery. See below. I’m at the ASSA conference in Boston to receive the AFEE Clarence E. Ayres Scholar Award. But who’s Clarence Ayres? Piketty and Mankiw should read him, as he pointed out the multiple meanings of the word ‘capital’ (at least in the english language!). And I’m proud to say that I follow in his footsteps, look here and here. Look here for his publications. From a summary of his work by David Landes:

Ayres, Clarence Edwin (1891-1972)

Ayres was the major figure in Institutional economics … certainly immediately after World War II. He was not primarily concerned with the business cycle, but saw it as one manifestation of nineteenth- and twentieth century capitalism, His treatment was incidental to a larger cultural analysis of the industrial economy and of capitalism… Ayres did not treat the business cycle as a matter of simple dislocation in an otherwise flawless market. In fact, the source of rises and collapses is an integral part of that market system. Ayres resorted to an analysis drawn in institutional, technological and cultural processes that have a historical derication… Like Veblen, Ayres contended that a tendency to deflation is endemic within capitalism. However, his reasoning is slightly different from, though not antithetical to, Veblen’s. The critical concept in Ayres analysis is the confused meaning of capital.As has been frequently observed, the term has at least two distinct meanings: one is money capital and te other is physical instruments devoted to production. The confusion arises because it is easy from the individual standpoint to confuse the process by virtue of which ownership of the instruments of production is acquired with the creation of that which is owned. And since it is money that is essential to ownership, the saving of money is considered to be essential to technological progress. However, as in Veblen, the latter is an autochtonous process which may be affected negatively by investment for profit”and may be permitted by it, but cannot be caused by it. Within capitalism, savings – being held to be the source of progress – is viewed as a virtue. Hence, no matter how seemingly gross and inequitable the division of the “social dividend”, it all works out to a good end for both the beneficiaries als well as those left out. Economic progress is assured and a growth in the social dividend is an automatic outcome. However, Ayres contends that this distribution results in a surfeit of funds as well as of goods. Capitalism suffers endemically from anemic consumption expenditure. Of course, he rejects Say’s law and emphasizes that, of what we call investment, much me be bogus inflation of securities and the creation of paper unrelated to any new creation of physical assets. … The lack of consumer purchasing power may be offset by military consumption … as well as by an excess of exports funded by the surfeit of funds by way of foreign investments, but which can never be paid of by the recipients of the largesse… At some length in his Divine right of capital, Ayres urged the development of a third source of income in addition to the already existing sources, labor and the ownership of property. He argued that we had, in fact, already gone some distance through welfare measures … in Ayres the stream of independent income would be regulated in its flow on the basis of what was needed to maintain economic stability and to remedy what he saw as a basic flaw in capitalism – inadequate consumption expenditures.