Keynes' predictions on the money as excess breeds excess
"In the long run," Keynes famously wrote, "we are all dead." 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 import of deep recessions - and what governments could do to prevent and shorten them - by promising that wounded economies, if given enough time, 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 continued.
Keynes, however, was deeply interested in the future - even the part 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 was a relatively fresh memory. The new economy, in which technological innovation raised living standards with remarkable regularity, was trapped in the throes of the Great Depression. And here came Keynes, promising "the standard of life in progressive countries 100 years hence will be between four and eight times as high as it is today".
Keynes was right. From 1930 to 2011 real per capita GDP in the US 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?" said UCLA economist Lee Ohanian 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."
If this came to pass, Keynes said, humanity would have solved, or be quite near to solving, "the economic problem" that had bedevilled every generation before us: we would have enough. Perhaps not as much as we wanted to have, or as much as we could have, but enough to survive.
This was, Keynes recognised, a reality for which we were ill-prepared. "If the economic problem is solved, mankind will be deprived of its traditional purpose," he wrote.
The question Keynes set out to solve was how mankind would adapt to a world of abundance. "He saw two options," explains Nobel prizewinning economist Joseph Stiglitz. "One was that we could consume ever more goods. Or we could enjoy more leisure. What worried Keynes was that when you looked at how people in the British upper classes spent their leisure, he was not overly enthralled with what he saw."
By and large, we have chosen door number one and this would have devastated Keynes.
Frequently Asked Questions about this Article…
John Maynard Keynes was a leading 20th-century economist who, in his 1930 essay 'Economic Possibilities for our Grandchildren,' predicted that living standards in progressive countries could be four to eight times higher in 100 years. He argued technological progress could solve the 'economic problem' of scarcity and raise real per capita GDP substantially over the long run.
By many measures Keynes was remarkably accurate: the article notes that real US per‑capita GDP rose about sixfold from 1930 to 2011, which falls within his four‑to‑eight times prediction. Economists like UCLA’s Lee Ohanian have commented that Keynes did surprisingly well making such long‑run projections.
Keynes used the phrase 'the economic problem' to mean the basic issue of scarcity — having enough to survive and meet needs. He suggested that technological progress could largely solve that problem, giving humanity enough resources, though perhaps not as much as might be theoretically possible.
Keynes laid out two broad options: people could either consume ever more goods or choose to enjoy more leisure. Nobel laureate Joseph Stiglitz noted Keynes worried about how people in leisure-rich societies might actually spend their time, finding some historical leisure patterns unimpressive.
Keynes was criticizing economists who dismiss the importance of deep recessions by saying economies will recover 'in the long run.' He argued that focusing only on very long‑run outcomes is useless in 'tempestuous seasons' when immediate policy and action matter to prevent and shorten painful downturns.
Keynes’ critique suggests recessions are serious and policymakers can influence their depth and duration. For everyday investors, that underscores the importance of factoring economic cycles and likely policy responses into decisions rather than assuming long‑run recovery will erase short‑term losses.
The article highlights that technological innovation over the past century consistently raised living standards and drove real per‑capita GDP growth. For investors, that historical trend supports the idea that long‑term economic growth can underpin long‑term investment returns, though it doesn’t remove the need to manage short‑term risks.
According to the article, by and large society chose more consumption rather than substantially more leisure. The author notes this outcome would likely have disappointed Keynes, who had hoped greater abundance might lead people to enjoy more leisure and different pursuits.
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