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“Economic Possibilities for our Grandchildren”, John Maynard Keynes (1930)

The English economist, John Maynard Keynes, wrote in 1930 a short essay, titled Economic Possibilities for our Grandchildren , where he discussed that in about a hundred years from that time (~ 2030) the economic problem would be solved.

I read this essay years ago and have referred to it many times, thus I had wanted to write here about it and leave some of the extracts and a few related graphics for future reference.

In a nutshell: Keynes forecast that, at some point in the future, productivity growth will reach a level such that we humans will not have to work more than 15 hours per week if we spread the available work to be done as widely as possible. The problem that humans will then face will be how to employ their time in leisure activities.

He comments that without the need to accumulate money we will see a “return to some of the most sure and certain principles of religion and traditional virtue-that avarice is a vice.

In the essay he also predicts “that the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is to-day. We can measure this by seeing the evolution of GDP per capita since then in the UK in the following graphic from the website Our World in Data (by Max Roser):

GDP per capita growth UK

Comparing the figures of the graphic 1930 (5,746 £) and 2016 (30,281 £), we see that the increase in these 86 years has been x 5.3 times (adjusted for inflation), thus between 4 and 8 times, as predicted, and pending 14 years to go till 2030.

Keynes included at the end of the paper some conditions that will set the pace of the progress to reach the moment in which the economic problem will be solved:

  • our power to control population,
  • our determination to avoid wars and civil dissensions,
  • our willingness to entrust to 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.

Population growth and control. In the following graphic from the same website “Our World in Data” (by Max Roser and Esteban Ortiz-Ospina) we can see that population growth from 1930 was far from being controlled. The rate of growth tripled reaching its maximum in 1962 (~2.2%). Since then it has nearly halved. The forecasts are that by the end of the current century population will cease to grow and stabilize at around 11 billion people.

updated-World-Population-Growth-1750-2100

Updated-World-Population-Growth-Rate-Annual-1950-2100

Wars and civil dissensions. Yet again, in the website “Our World in Data” (by Max Roser) we can see how a few years after Keynes wrote his essay (1930) started the Second World War. However, since the end of WWII the global figures of deaths in wars between states, civil wars, etc., have greatly decreased.

International-Battle-Deaths-per-100000-20th-Century-Acemoglu0

state-based-battle-related-deaths-per-100000-since-1946

To conclude this post, I leave here below a few extracts from the essay.

—-

“We are suffering just now from a bad attack of economic pessimism.”

“We are suffering, not from the rheumatics of old age, but from the growing-pains of over-rapid changes, from the painfulness of readjustment between one economic period and another.”

“The prevailing world depression, the enormous anomaly of unemployment in a world full of wants, the disastrous mistakes we have made, blind us to what is going on under the surface to the true interpretation. Of time-the pessimism of the revolutionaries who think that things are so bad that nothing can save us but violent change, and the pessimism of the reactionaries who consider the balance of our economic and social life so precarious that we must risk no experiments.”

“My purpose in this essay […] What can we reasonably expect the level of our economic life to be a hundred years hence? What are the economic possibilities for our grandchildren?”

“Some periods perhaps So per cent better than others at the utmost 1.00 per cent better-in the four thousand years which ended (say) in A. D. 1700.”

“This slow rate of progress, or lack of progress, was due to two reasons – to the remarkable absence of important technical improvements and to the failure of capital to accumulate.

“The absence of important technical inventions between the prehistoric age and comparatively modern times is truly remarkable.”

“At some epoch before the dawn of history perhaps even in one of the comfortable intervals before the last ice age-there must have been an era of progress and invention comparable to that in which we live to-day. But through the greater part of recorded history there was nothing of the kind.”

“The modern age opened; I think, with the accumulation of capital which began in the sixteenth century. I believe – for reasons with which I must not encumber the present argument – that this was initially due to the rise of prices, and the profits to which that led, which resulted from the treasure of gold and silver which Spain brought from the New World into the Old. From that time until today the power of accumulation by compound interest, which seems to have been sleeping for many generations, was re-born and renewed its strength. And the power of compound interest over two hundred years is such as to stagger the imagination.”

“For I trace the beginnings of British foreign investment to the treasure which Drake stole from Spain in 1580. In that year he returned to England bringing with him the prodigious spoils of the Golden Hind. Queen Elizabeth was a considerable shareholder in the syndicate which had financed the expedition. Out of her share she paid off the whole of England’s foreign debt, balanced her Budget, and found herself with about £40,000 in hand. This she invested in the Levant Company –which prospered. Out of the profits of the Levant Company, the East India Company was founded”

“Thus, every £1 which Drake brought home in 1580 has now become £100,000. Such is the power of compound interest!”

“From the sixteenth century, with a cumulative crescendo after the eighteenth, the great age of science and technical inventions began, which since the beginning of the nineteenth century has been in full flood — coal, steam, electricity, petrol, steel, rubber, cotton, the chemical industries, automatic machinery and the methods of mass production, wireless, printing, Newton, Darwin, and Einstein, and thousands of other things and men too famous and familiar to catalogue.”

“What is the result? In spite of an enormous growth in the population of the world, which it has been necessary to equip with houses and machines, the average standard of life in Europe and the United States has been raised, I think, about fourfold. The growth of capital has been on a scale which is far beyond a hundredfold of what any previous age had known. And from now on we need not expect so great an increase of population. If capital increases, say, 2 per cent per annum, the capital equipment of the world will have increased by a half in twenty years, and seven and a half times in a hundred years. Think of this in terms of material things — houses, transport, and the like.”

“At the same time technical improvements in manufacture and transport have been proceeding at a greater rate in the last ten years than ever before in history. In the United States factory output per head was 40 per cent greater in 1925”

“In quite a few years-in our own lifetimes I mean – we may be able to perform all the operations of agriculture, mining, and manufacture with a quarter of the human effort to which we have been accustomed.”

“We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come — namely, technological unemployment. This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.”

“… means in the long run that mankind is solving its economic problem. I would predict that the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is to-day.”

“Let us, for the sake of argument, suppose that a hundred years hence we are all of us, on the average, eight times better off in the economic sense”

“… when these needs are satisfied in the sense that we prefer to devote our further energies to non-economic purposes.”

“I draw the conclusion that, assuming no important wars and no important increase in population, the economic problem may be solved, or be at least within sight of solution, within a hundred years.”

“… we look into the past-we find that the economic problem, the struggle for subsistence, always has been hitherto the primary, most pressing problem of the human race”

“If the economic problem is solved, mankind will be deprived of its traditional purpose.

“To use the language of to-day-must we not expect a general “nervous breakdown”? We already have a little experience of what I mean -a nervous breakdown of the sort which is already common enough in England and the United States amongst the wives of the well-to-do classes, unfortunate women, many of them, who have been deprived by their wealth of their traditional tasks and occupations–who cannot find it sufficiently amusing, when deprived of the spur of economic necessity, to cook and clean and mend, yet are quite unable to find anything more amusing.”

“Thus for the first time since his creation man will be faced with his real, his permanent problemhow to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.”

“For we have been trained too long to strive and not to enjoy. It is a fearful problem for the ordinary person, with no special talents, to occupy himself”

“We shall do more things for ourselves than is usual with the rich to-day, only too glad to have small duties and tasks and routines. But beyond this, we shall endeavour to spread the bread thin on the butter-to make what work there is still to be done to be as widely shared as possible. Three-hour shifts or a fifteen-hour week may put off the problem for a great while. For three hours a day is quite enough to satisfy the old Adam in most of us!”

“When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals.”

“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 semicriminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease.”

“I see us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue-that avarice is a vice, that the exaction of usury is a misdemeanour, and the love of money is detestable

“But beware! The time for all this is not yet. For at least another hundred years we must pretend to ourselves and to every one that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still.”

“… it will all happen gradually, not as a catastrophe. Indeed, it has already begun. The course of affairs will simply be that there will be ever larger and larger classes and groups of people from whom problems of economic necessity have been practically removed.”

“The pace at which we can reach our destination of economic bliss will be governed by four things-our power to control population, our determination to avoid wars and civil dissensions, our willingness to entrust to 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.”

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