Economic Possibilities for Keynes’s Grandchildren

83 years ago John Maynard Keynes, the great economist of the first half of the 20th century, wrote a short essay entitled Economic Possibilities of Our Grandchildren. Even though the word and the very discipline of futurology had not been invented yet at that time, this is exactly what Keynes engaged in. He wrote down in the essay what he thought the world would look like around 100 years later. Although there are still some 15 years left, I guess it is fair enough to assume that no great, revolutionary changes in societal or economic affairs will take place until 2030. Let us therefore take a look at Keynes’s vision, for we can learn a lot from it about our own time.

Keynes in 1946.

In spite of having written the essay at the beginning of the Great Depression, Keynes was fairly optimistic with regard to his contemporaries’ grandchildren’s (i.e., our) prospects. Applying a rather simple extrapolation of trends he arrived at the conclusion that the standard of living “will be between four and eight times as high” in 2030 as it was at his time. Furthermore, he expected a reduction in average working hours to around 15 a week as a remedy against unemployment, which would otherwise result from the increased productivity. Also, he expected that people largely abandon vices which he deemed still indispensable at his time, such as “[a]varice and usury and precaution [sic!]”. In short, he imagined a world in which people feel good, lack nothing essential, work little (but enough to “satisfy the old Adam in most of us”) and are morally advanced farther than his contemporaries were. In a way, this is what I once called the ancient Greece model.

Importantly, Keynes stressed four preconditions for his vision to become reality, namely:

our power to control population, our determination to avoid wars and civil dissensions, our willingness to entrust science the direction of those matters which are properly the concern of science, and the rate of accumulation as fixed by the margin between our production and our consumption; of which the last will easily look after itself, given the first three.

Before we come to contrasting Keynes’s vision with today’s reality, let us dwell shortly on his assumptions. As for population, we clearly failed globally – world population was around 2 billions in 1930, it is 7 bn today and likely to keep increasing well into the 21st century. On the other hand, the so-called advanced countries have not only accomplished to “control their population” quite well – most of them have to deal with the opposite caveat of diminishing population (although, as I argued elsewhere, this may be a transitional problem only). But since Keynes seemed to be writing about the world as a whole (so at least my impression – he does not make this explicit), we may conclude that we failed to fulfil his condition.

As of peace, it is a sad irony that only 10 years after Keynes published his essay, Europe and many other parts of the world witnessed the greatest single calamity in human history – the Second World War. Conversely, in the 70 years that followed, we managed to keep most of the world’s parts fairly peaceful most of the time. In some regions, violent conflict seems to be endemic, and even the advanced countries have to struggle with social unrest, but given the scale of this, we may conclude that his condition has been largely met in the decades following the Second World War.

With regard to science, Keynes seems to have been overly optimistic. First, we still do not accept all science, mainly because it has become too complex for an ordinary citizen to judge what is the “scientific truth”. The struggles over climate change, genetic engineering or energy generating technologies are only a few examples. Also, our past / Keynes’s future has shown that science often is not enough. Ordinary people, little as they sometimes understand the details, have to be engaged in decision processes regarding new technologies – an approach called post-normal science by some. In this respect the world has proved much more complex and demanding than Keynes was able to imagine.

Given these points, we should have dramatically failed to live up to Keynes’s forecast. Paradoxically, however, we haven’t. World GDP per capita was around US$ 1.000 in 1930. It is approximately US$ 6.500 today (both in 1990 dollars), which is close to the upper bound of Keynes’s estimate. Why did this happen? Why have we achieved the level of material wealth Keynes forecast, even though we did not meet his conditions? There are two important reasons why Keynes was wrong while being right at the same time. First, humanity ignored natural constraints to economic expansion, constraints Keynes didn’t even think of, thus living “on tick”. Second, we refused to live up to his vision of a new way of life, a new culture, and continued to raise material standards of living without really enjoying the fruits of this enterprise (because this would require to say “Enough!”?). Although Keynes distinguished in his essay between “basic needs” and the insatiable “desires” resulting from what Richard Sennett calls invidious comparison, he obviously underestimated the driving power of the latter.

In Keynes’s times, it was unusual to think about the interferences between human economic activity and natural ecosystems. Part of the reason was that we still lived rather in a cowboy than in a spaceship economy back then, another part being the sheer fact that we had not sufficient knowledge to be concerned about our activities. Indeed, the pioneers of the environmental movement – Nicholas Georgescu-Roegen, Kenneth Boulding, Rachel Carson – started publishing their works and gaining attention in the 50s and 60s. But, as a matter of fact, much of the economic development since Keynes’s times happened at the expense of environmental stability and sustainability. In this sense, it was economic growth “on tick”. Much of the expansion from US$ 1.000 per capita for 2 billion people to US$ 6.500 per capita for 7 billion people was only possible because we over-used natural resources, which we now know quite well (it doesn’t stop us from going on, but this is another issue). So, if we wouldn’t have become environmental debtors, our economic success likely would have been much smaller, probably disappointing Sir Keynes. Especially since we have not met his actual conditions for prosperity, as mentioned above.

Still, no matter how, we did achieve the wealth, perishable as it may be, which Keynes had expected us to achieve. So, how does it come that we still work 35-40 hours a week, even the most affluent of us (indeed, they are often those who work most)? Why haven’t we abandoned avarice and usury? Interestingly, Keynes prescriptions about how to live in affluence, how to enjoy it, have much in common with the prescriptions now given by proponents of a post-growth society. The reason why we have ignored both Keynes and Tim Jackson or the Skidelskys may be found in the work done by two intellectuals in the 1970s. The one is Alvin Tofler with his book Future Shock, the other is Fred Hirsch with his Social Limits to Growth (see Ideas Lost in Time).

Tofler stressed our increasing anxiety about an ever faster changing world. While he hoped that we can accommodate to this new reality, he also recognized that people fear fundamental changes in lifestyle and the institutional environment and seek to avoid them. The changes prescribed by Keynes and today’s post-growth movement alike are deep and in a sense revolutionary. People fear them. One way to avoid them is quantitative economic growth. If we produce and consume ever more (at the expense of the environmental basis), we do not have to say “Enough!”, to work less, to live differently. We may not actually like the consumer society, working 40 hours a week etc., but that is what we are used to, what we know. Abandoning this lifestyle would mean uncertainty. Change. The need for adaptation. Maybe disappointment. So maybe it is easier to close one’s eyes on the growing environmental debt burden and just go on?

The fear of change is one component. The other is something Keynes recognized in his essay but skipped without giving much attention. He called it “desire of superiority” and “needs […] which are relative in the sense that we feel them only if their satisfaction lifts us above […] our fellows”. Fred Hirsch called them positional goods – goods which provide satisfaction only if our neighbour does not have them as well. Positional competition can, theoretically, go on forever. It is a steady up-and-down, because sometimes one group of people is the “superior” one, in other times others gain this status. But this kind of competition makes an “Enough!” impossible. Stop striving and you immediately fall behind. This, also, may be a reason why we still do not work 15 hours a week, even though we could. The individual decision to work less leads to less ability to acquire positional goods, to gain status.

The vision sketched by John Maynard Keynes in his 1930 essay was great. As yet, it has however not quite become reality, and it does not seem likely that it will in near future. While we are materially as rich as Keynes hoped, we have not found the determination and will to enjoy our standard of living, notwithstanding the fact that we achieved this level “on tick”. So, instead of enjoying our wealth, we keep chasing an illusion called “status”, striving for a good we cannot all achieve. But there is one source of “hope” left: it may be that environmental constraints put a stop to our blind chase. This, however, is likely to be the opposite of what Keynes wished for his grandchildren.


2 thoughts on “Economic Possibilities for Keynes’s Grandchildren

  1. Great post. I think you are absolutely right that it is with regard to positional goods that Keynes was so wrong.

    Where I would disagree with you is with regard to the extent to which positional goods will be devalued when resource constraints limit growth. You can have positional goods on the way down as well as on the way up: they are by definition relative. Moreover, humans can reset their positional anchors, which is one reason failing states like Afghanistan record remarkably high levels of happiness.

    Also positional goods and services come in many forms. I have been at many a Transition Town meeting where a member has sort status through expounding on the relative superiority of his or her sustainable lifestyle. You could argue that this form of status seeking is superior to building a luxury resort on virgin rain forest, but the underlying motive seems hard wired within us.

  2. You are right. I didn’t really mean specifically that resource constraints would remove positional competition, but only that they are generally likely to turn our world upside-down and force us to make some changes in lifestyle and attitudes. But you are right in pointing out, sad as this may be, that positional competition/invidious comparison/status seeking is an inherent characteristic of human being and needn’t be about luxury goods only. I guess, it’s more about limiting the extent of such behaviour than about abandoning it completely.


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