History doesn’t repeat itself, Mark Twain reportedly said, but it rhymes. The aphorism resonates when we compare the crash of 1929 with the crash of 2008. Both revealed the intellectual bankruptcy of orthodox economic thought—the failure of free marketers to anticipate or respond adequately to economic collapse, and the absence of any connection between the clean textbook model of economic man and the messy actuality of human experience. But while the 1929 crash and its aftermath provoked a vigorous public debate about how to make a more humane economy, the 2008 crash has inspired a deafening silence, punctuated by frantic reassertions of orthodoxy. Only austerity, we are told, can save us now.
A few hardy souls challenge this view, mostly by invoking the ideas of John Maynard Keynes. It’s a smart move. Keynes broke the choke hold of orthodox economics in the 1930s, hammering away at the catastrophic impact of balanced budgets on unemployment during a downturn, arguing that only public investment could put money back in people’s pockets and increase the consumer demand that would lead out of the Depression. Government debt is not like household debt; governments have resources—taxation and control of the money supply, for starters—that households lack. And governments can use those resources to moderate the lurchings of the business cycle. Contemporary devotees of belt-tightening ignore these fundamental truths. Keynes belongs in our current debate, if only to remind us of these truths.
But Keynes was more than a clever economist with timely prescriptions for public policy. The urbane Cambridge professor, at ease with financiers and diplomats, was also a major figure in the maelstrom of modernist thought. Like William James, Sigmund Freud and other modernists, Keynes challenged the governing Victorian norms of rationality and certainty as he groped toward a more fluid notion of human consciousness. His breakthrough was his emphasis on the importance of “animal spirits”—the source of the “spontaneous urge to action” that prompted investors to back various enterprises despite their profound uncertainty about how their choices would pan out. The notion of animal spirits was an ancient idea that acquired a powerful new resonance during the early 20th century, when modernist thinkers on both sides of the Atlantic became fascinated by the mysterious vital force at the core of all human life. What Keynes called animal spirits, Freud called libido.
Keynes’s preoccupation with animal spirits stemmed from the split between his own disciplined rationality and his fraught libidinal life—a conflict that can be glimpsed in Robert Skidelsky’s magisterial biography. As a boy Keynes aced every competitive examination that came his way but showed special promise in mathematics. He was obsessed with quantitative measurement, monitoring his hours worked, number of pages read, even the time it took to write a letter to his mum. Yet at Eton and Cambridge he was quickly swept up in the torrents of homosexual desire that flooded upper-class British school life. Believing he was repugnant to men as well as women, he endured passionate short-term affairs that often ended in rejection. After his graduation, he fell in with the Bloomsbury crowd, whose bisexual couplings had already become legendary (at least in their own minds). But Keynes wanted sex fused with intense emotional connection. Frustrated in his pursuit of the painter Duncan Grant, he eventually took up with Lydia Lopokova, an idiosyncratically attractive woman who danced in Serge Diaghilev’s avant-garde ballet company. Both Lopokova and Grant embodied the vitality and spontaneity that Keynes associated with animal spirits. Their conversation was fresh, unscripted and (sometimes unintentionally) hilarious. No wonder Lopokova and Keynes finally peeled away from the Bloomsbury set in the 1920s.
At about the same time, Keynes was also formulating his dissent from orthodox economics. His first key move was his recognition that nearly all long-term investment decisions were shrouded in uncertainty. As he wrote in General Theory of Employment, Interest and Money (1936), uncertainty was not to be confused with probability: “The prospect of a European war is uncertain, or the price of copper and the rate of interest 20 years hence, or the obsolescence of a new invention.… About these matters, there is no scientific basis to form any calculable probability whatever. We simply do not know.” Keynes’s frank admission was a declaration of independence from the illusions of certainty and predictability in human affairs, even when those illusions were founded on statistically based forecasts. “One can always cook moderately well a limited range of past facts. But what does this prove?” Keynes asked. “What place is allowed for non-numerical factors, such as inventions, politics, labor troubles, wars, earthquakes, financial crises?” What place is left, he might have added, for the vagaries of life itself? This was the question that justified Keynes’s move from micro- to macroeconomics—from the individual “rational actor” pursuing his own self-interest to the larger context of the entire society in all its psychological and institutional complexity.
By making that move, Keynes opened the door to a consideration of animal spirits. Given the inescapable condition of uncertainty that pervaded human existence, the model of an economic man mathematically calculating his interests could not withstand scrutiny. People, including investors, made decisions differently. As Keynes wrote in 1936: “Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits, of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities. Enterprise only pretends to itself to be mainly actuated by the statements in its own prospectus, however candid and sincere. Only a little more than an expedition to the South Pole, is it based on an exact calculation of benefits to come.” If taken seriously, Keynes’s emphasis on animal spirits threatened to undermine the foundations of orthodox economics and open the discipline to the complexity of human experience.
That never happened, even during the mid-century decades, when Keynesian ideas dominated public discourse. Keynes’s philosophical edge was blunted, his modernist perspective trimmed down to fit the confines of conventional economics. His student Richard Kahn later lamented that the master’s most challenging work had been reduced to “diagrams and bits of algebra.” That is what politicians and treasury officials needed to adapt his ideas to their purposes. When the diagrams no longer seemed to fit the situation, in the 1970s, the gates were opened for the return of orthodox microeconomics, repackaged in the statistical models of econometrics. The model builders failed to see the structural weaknesses that created and sustained the Great Recession. Keynes would not have been surprised.
The larger vision of Keynes—his economics of animal spirits—does not provide specific policy prescriptions. But it does challenge us to think about economic life in more capacious ways, historically and psychologically as well as statistically, and to imagine a more humane way to integrate economics with the rest of life. For this to happen, it may be necessary to explore the role of animal spirits in a setting Keynes rarely considered: the workplace. This might extend his reach to reveal the visceral longings behind the gross national product—the excitement and aspiration, the rage, humiliation and fear. Not since Studs Terkel’s Working (1974) have we had a comprehensive look at the emotional rewards and costs of making a living—the pleasure of the well-made wall but also the monotony of the assembly line, the tedium of the retail trade, the embarrassments of the corporate retreat. As Terkel wrote: “This book, being about work, is, by its very nature, about violence—to the spirit as well as to the body.” This is the kind of insight that could supplement Keynes’s work, the recognition that capitalism is a system of power relations as well as a machine for making money. Keynes and Terkel could be a powerful combination. Few imaginary encounters are more appealing than the Cambridge don and the Chicago barfly, ambling down Division Street, reflecting on the rhymes of recent history.