Rentier Class

To hope to retire, is to hope to be prosperous without working. Those who must work can grow sullen about it.

Dr. Fisher

Rentier income is passive income, such as interest on savings accounts. Lord Keynes gave the definition a noticeable twist by defining the rentier class as "functionless investors" . That suggested Keynes had sentiments about passive investing like those of Karl Marx, who seems to have invented the term; both authors apparently judging the rentier class by the standards of novels by Jane Austen and Edith Wharton, or perhaps the movie stars depicted in the novels of F. Scott Fitzgerald. Not gainfully employed, mainly occupied with debaucheries and expensive luxuries. This envious image dies hard, but may not persist if rentier life becomes everyone's goal. Or it may turn vicious, if a majority of voters see themselves as in the water with the sharks, looking at the lucky few in the lifeboat.

To a certain degree, these attitudes can be managed, as can possibly be illustrated by bankers. After all, bankers most readily extend credit to financially secure borrowers, at lower interest rates, and refuse credit to the penniless clients who need it most. The public is mainly tolerant of the differential cost of taking risks. However, the public is often highly intolerant of the true value of a banker's role: efficient re-distribution of capital between those who have a surplus, and those who have a need. We have come to believe the relief of need requires political majorities, responding to political viewpoints. If votes were all that mattered, however, the growing proportion of the population in retiree status could afford to be complacent.

In the first place, 30-35% of American GDP would now qualify as the spending of passive income, although the varying degree of risk involved in such investment is hard to evaluate. That proportion is sure to rise as we globalize more labor-intensive work. Foreigners begin to notice a paradox that passive income seemingly increases as the labor to achieve it diminishes. Rentiers are never far from the necessity to defend themselves, and our best defense may lie in the two billion Indians and Chinese following our footsteps up the economic ladder.

A greater proportion of our population will be retired persons, living on pensions and rentier income from savings. As it becomes the universal expectation of everyone that thirty years of rentier life awaits in the retirement stage of life, there will be less and less likelihood that Keynes and Marx and Fitzgerald will seem so congenial to the voting class. But take care; young people, particularly unemployed young people, are never far from asking, "And what have you done for us, lately?"

Curiously, another big social implication about rentier income has almost disappeared already. Interest income is paid by a debtor to a creditor; as Marx would have it, the poor workingman is paying the rich rentier. Dividend income represents the profit from a business to its owner, or a farm to its farmer. But emotionally, it no longer does. We have so sterilized the investment process that we seldom think of debtors and creditors, we think of "fixed income" and "fixed income investors". The income from ownership, or "equity", is now thought by economists to bear a definable relation to the "prevailing return from fixed income". It's all, in a sense, the same thing. Future attitudes are hard to predict.

It's also hard to predict where Americans will generally stand, when passive income becomes eighty percent of GDP. Or fifty percent of the population at that time are then rentiers. Eighty percent, if you exclude children. Western Europeans seem willing to sacrifice luxury in order to live as threadbare rentiers, right now. The ancient Romans aspired to more luxury, fewer soldiers; unsympathetic barbarian neighbors then wiped them out. Better do some thinking about this. The Law of Gravity will not save the situation, nor history give much comfort.

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