Euthanasia of the Rentier
A rentier is an individual who lives on interest income (rent) received in compensation
for the loan of property held in the form of money, not to be confused with landowners
who receive rent paid for the loan of property in land.
Today the term refers generically to the owner of any debt obligation, public or private,
paying periodic, annual or semi-annual, usually fixed amounts of interest over a long
term.
Ricardo’s early 19th century position that landlords’ interests were inimical to industrial
expansion was replaced in the 20th century by criticism of the rentier as a brake on the
dynamics of capital accumulation. Individuals who derived income from neither labor
nor productive capital investment were viewed as parasites living off the efforts of the
laborer and the entrepreneur-capitalist.
Rentiers have also been criticized for actively discouraging economic and social change
in defense of their vested interests in property rights and money contracts. As well as
defending the right to interest income and accumulated wealth, the rentier has to defend
the purchasing power of his interest income and the capital value of his wealth. Inflation
is thus the first enemy of the rentier living on fixed interest payments, for it reduces the
real purchasing power of current income. As a class, rentiers will thus favor conservative
government policies to balance budgets and produce deflationary conditions even at the
expense of economic growth and high levels of employment.
But Keynes’s theory focused instead on the advantages that rentiers would find in
holding liquid assets rather than in financing employment-creating investment in periods
where they felt threatened by uncertainty over the future value of their income and
capital. In such conditions, employment-generating investment would have to compete
with the rentiers’ preference for liquidity, creating rates of interest far in excess of what
entrepreneurs could pay from the expected earnings of productive investment. Further,
rentier preferences might be so strong as to render the monetary authority powerless to
reduce interest rates to stimulate activity. Keynes thus advocated a policy of direct
intervention through the socialization of investment, accompanied by low, stable rates of
interest which would eventually eliminate the power of rentiers to hinder policies for full
employment.