What Did Keynes Get Right About the Modern World?
John Maynard Keynes is considered to be one of the greatest visionaries of all time. His theories shaped economic policy for decades. And his biographer, the historian Robert Skidelsky, even believes that the Second World War might not have broken out if people had listened to Keynes. What relevance do his ideas have in the modern economy? More than you might think.
The Frankfurter Allgemeine Zeitung once called Keynes "the most influential economist of the 20th century."Actually, however, he wasn't really an economist at all; he had very little training in that discipline…
That's true. Technically speaking, Keynes would hardly be regarded as an economist today. But at the same time, he was "more than an economist,"as his wife once so aptly put it. His background was in philosophy, ethics and mathematics, and he took a keen interest in art and literature throughout his life. He was a member of the well-known literary circle known as the Bloomsbury Group and a close friend of the writer Virginia Woolf.
Was it the breadth of his intellectual interests that made Keynes such a visionary economist?
Keynes's perspective on economic issues was very different from that of traditional economists. He thought more in social and psychological terms, and recognized that instinct, emotions and herd behavior had a strong impact on economic life and politics. That he viewed reality differently was evident at the peace negotiations in Versailles after the end of the First World War. Keynes left the negotiations in anger after his warning not to plunge Germany into economic disaster by demanding that it pay huge sums of money in reparations went unheeded.
So Keynes realized that an economic disaster would inevitably lead to a political disaster?
That's right. If the politicians representing the victorious powers had listened to Keynes, who knows whether Hitler would ever have gained power, and whether there would even have been a Second World War…
Overall, the interwar period was a time of considerable intellectual upheaval. Economics, too, was filled with new ideas.
Yes, and Keynes was very much involved in the discipline's process of self-discovery. We mustn't forget that the Great Depression was the biggest economic collapse in modern times. The world was confronting enormous economic problems and equally huge political problems: the rise of fascism and the challenge posed by communism. If the liberal democratic system was to survive, it was necessary to do more than merely acknowledge the existence of mass unemployment and trust the market to set things right.
So John Maynard Keynes, today regarded as leaning to the left, rescued capitalism?
You could certainly make that argument. Traditional economics offered no formula for preventing mass unemployment, or for dealing with it after it had become a reality.
Keynes's perspective on economic issues was very different from that of traditional economists. He thought more in social and psychological terms, and recognized that instinct, emotions and herd behavior had a strong impact on economic life and politics.
In 1930, in the midst of the global economic crisis, Keynes made a prediction that wasn't taken seriously at the time, but that seems much more realistic today. In his essay "Economic Possibilities for Our Grandchildren," he predicted that in a hundred years (by 2030, a year that no longer seems so distant) the standard of living would be four to eight times as high as it was then, and people would be working only 15 hours per week. The first prediction was on target, but the second was quite wrong. How do you explain this?
Keynes underestimated the insatiable human desire for consumption and the level of competition to consume. People don't just want to have enough; they often want to have more than other people do. And he no doubt underestimated the power of advertising, which makes people want even more. We are living in a culture of relentless consumerism – this is at the heart of the Western economies.
But even in wealthy Western countries, many people have to work very long hours just to get by.
Yes, that was something Keynes failed to foresee. He was looking at averages and giving little thought to income distribution. And, of course, he didn't foresee that real incomes would remain as flat as they have over the past 20 or 30 years. Keynes assumed that real wages would rise as productivity increased, which was indeed true until into the 1970s. Since that time, however, wages have not increased to the same degree. As a result, many people are not as free to choose how many hours to work as Keynes would have expected.
So does the old saying that "predictions are difficult, especially about the future" apply even to a visionary like Keynes?
Well, his prediction of the 15-hour week wasn't so terribly off the mark. There has in fact been a significant decline in the average number of hours people work each week, at least in the wealthier countries. Today that number is probably around 30, if calculated properly – that is, taking into account vacations, holidays and, most important, a much longer period of retirement. In any event, people are working far less, on average, than in the 1930s.
Twelve years from now – by 2030 – we may be closer to Keynes's 15-hour work week than we are today. In a highly digitalized economy, a kind of "leisure class" might well emerge; highly skilled individuals, at least, might then have the opportunity for a lifestyle with the freedom to pursue their own interests. But what about the many others?
That's the obvious question: Does Keynes's vision apply only to the "happy few"? Of course, the members of the Bloomsbury Group belonged to that segment of society; they were economically privileged members of the educated classes who used their time for creative and intellectual pursuits. Keynes was talking about freedom to pursue one's own interests, not simply about time off work. However, many people would probably find it overwhelming to be without a structured workday. Naturally, it depends on one's level of education. When we become wealthier, more money is spent on education, and that provides more opportunities for people to engage in creative pursuits.
In the long run, will we all become a bit more like Keynes and the Bloomsbury Group – wealthy, educated, creative?
Keynes discusses this in his essay on "Economic Possibilities for Our Grandchildren." For that to happen, he writes, it will take nothing less than a "general nervous breakdown." In other words, this will be possible only if we dramatically transform working life and the educational system – and that would be far from easy.