It was human nature not economics that foxed Keynes

John Maynard Keynes was right about the future but he was wrong about how we'd be spending it.

John Maynard Keynes was right about the future but he was wrong about how we'd be spending it.

"In the long-run we are all dead," Keynes famously wrote. I rate that claim true, but it actually has little to do with Keynes' views on the subject.

Keynes was criticising his colleagues in the economics profession who minimised the importance of deep recessions - and what governments could do to prevent and shorten them - by promising that wounded economies, if given sufficient time, would eventually return to health.

"Economists set themselves too easy, too useless a task if, in tempestuous seasons, they can only tell us that when the storm is long past the ocean is flat again," he said.

However, Keynes was deeply interested in the future - even the part that would happen after he was dead. In 1930, he wrote a slim tract titled Economic Possibilities for our Grandchildren. What he got wrong is interesting; what he got right is remarkable.

Consider the context: the industrial revolution, and the millennia of economic stagnation that preceded it, was a relatively recent memory. The new economy, in which technological innovation raised living standards with remarkable regularity, was trapped in the throes of the Great Depression.

Then along came Keynes, promising that "the standard of life in progressive countries 100 years hence will be between four and eight times as high as it is today".

He was right. Between 1930 and 2011, real per capita gross domestic product in the United States (the size of the economy after adjusting for inflation and dividing by the population) rose sixfold.

"Would any economist today, even with the benefit of training in frontier growth theory, try to make serious economic projections 100 years out?" University of California, Los Angeles economist Lee Ohanian asked in Revisiting Keynes.

"Very unlikely, but Keynes did, and did so remarkably well - in all honesty, much too well - given the available theory and the existing economic conditions when he was writing."

Keynes said that if this came to pass, humanity would have solved, or be quite near to solving, "the economic problem" that had bedevilled every previous generation: we would have enough - perhaps not as much as we wanted to have, or as much as we could have, but enough to survive.

Keynes recognised this was a reality for which society was ill-prepared. "We have been expressly evolved by nature, with all our impulses and deepest instincts, for the purpose of solving the economic problem," he wrote. "If the economic problem is solved, mankind will be deprived of its traditional purpose."

The question Keynes set out to solve was how mankind would adapt to a world of abundance. "He saw two options," Nobel prize winning economist Joseph Stiglitz says. "One was that we could consume ever more goods or we could enjoy more leisure."

By and large, we have chosen door No. 1.

This would have devastated him. He hoped that in a post-scarcity world "the love of money as a possession - as distinguished from the love of money as a means to the enjoyments and realities of life - will be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease".

In this, he was insufficiently committed to his own analysis. He hoped that solving the economic problem would return us to our true nature and man would "once more value ends above means and prefer the good to the useful".

But he had it right the first time. Man's true nature evolved around the economic problem and, with the economic problem solved, it has simply applied itself to a simulacrum of the economic problem.

In the US, the economic problem that organises many of our lives is not that we don't have enough; it's that we don't have quite as much as those who have more. That's an economic problem that, almost by definition, can never be solved. It is an economic problem that assures we will never lose our purpose.

It is also an economic problem most of us choose for ourselves, but not all of us. A recent article in a US newspaper told the story of Mister Money Moustache, who retired at 30 and lives happily with his wife and child and devotes himself to his family and leisure. He considers today's middle-class life "an exploding volcano of wastefulness" and lives on $US25,000 a year. His life is proof that Keynes was right about what we could do. His rarity is proof that he was wrong about what we would do.

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