Economic Possibilities for our
Grandchildren (1930)*
I
We are suffering just now from a bad attack of economic pessimism. It is common to hear people say that the epoch of enormous economic progress which characterised the nineteenth century is over; that the rapid improvement in the standard of life is now going to slow down ‑-at any rate in Great Britain; that a decline in prosperity is more likely than an improvement in the decade which lies ahead of us.
I believe that this is a wildly mistaken interpretation of what is happening to us. 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 increase of technical efficiency has been taking place faster than we can deal with the problem of labour absorption; the improvement in the standard of life has been a little too quick; the banking and monetary system of the world has been preventing the rate of interest from falling as fast as equilibrium requires. And even so, the waste and confusion which ensue relate to not more than 7½ per cent of the national income; we are muddling away one and sixpence in the £, and have only 18s. 6d., when we might, if we were more sensible, have £1 ; yet, nevertheless, the 18s. 6d. mounts up to as much as the £1 would have been five or six years ago. We forget that in 1929 the physical output of the industry of Great Britain was greater than ever before, and that the net surplus of our foreign balance available for new foreign investment, after paying for all our imports, was greater last year than that of any other country, being indeed 50 per cent greater than the corresponding surplus of the United States. Or again‑if it is to be a matter of comparisons‑suppose that we were to reduce our wages by a half, repudiate four fifths of the national debt, and hoard our surplus wealth in barren gold instead of lending it at 6 per cent or more, we should resemble the now much‑envied France. But would it be an improvement?
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 the trend of things. For I predict that
both of the two opposed errors of pessimism which now make so much noise in the
world will be proved wrong in our own 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,
however, is not to examine the present or the near future, but to disembarrass
myself of short views and take wings into the future. 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?
From the earliest times of
which we have record‑back, say, to two thousand years before Christ‑down
to the beginning of the eighteenth century, there was no very great change in
the standard of life of the average man living in the civilised centres of the
earth. Ups and downs certainly. Visitations of plague, famine, and war. Golden
intervals. But no progressive, violent change. Some periods perhaps So per cent
better than othersat 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. Almost everything which really matters and which the world
possessed at the commencement of the modern age was already known to man at the
dawn of history. Language, fire, the same domestic animals which we have to‑day,
wheat, barley, the vine and the olive, the plough, the wheel, the oar, the
sail, leather, linen and cloth, bricks and pots, gold and silver, copper, tin,
and lead‑and iron was added to the list before 1000 B.C.‑banking,
statecraft, mathematics, astronomy, and religion. There is no record of when we
first possessed these things.
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 to‑day 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.
Let me give in illustration
of this a sum which I have worked out. The value of Great Britain's foreign
investments to‑day is estimated at about
£4,000,000,000. This yields us an income at the rate of about 6½ per
cent. Half of this we bring home and enjoy; the other half, namely, 3¼ per
cent, we leave to accumulate abroad at compound interest. Something of this
sort has now been going on for about 250 years.
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; and the profits of this
great enterprise were the foundation of England's subsequent foreign
investment. Now it happens that £40,ooo accumulating at 3f per cent compound
interest approximately corresponds to the actual volume of England's foreign
investments at various dates, and would actually amount to‑day to the
total of £4,000,000,000 which I have already quoted as being what our foreign
investments now are. 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 than in 1919. In Europe we are held back by temporary obstacles, but even so it is safe to say that technical efficiency is increasing by more than 1 per cent per annum compound. There is evidence that the revolutionary technical changes, which have so far chiefly affected industry, may soon be attacking agriculture. We may be on the eve of improvements in the efficiency of food production as great as those which have already taken place in mining, manufacture, and transport. 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.
For the moment the very
rapidity of these changes is hurting us and bringing difficult problems to
solve. Those countries are suffering relatively which are not in the vanguard
of progress. 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.
But this is only a temporary
phase of maladjustment. All this 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. There would be
nothing surprising in this even in the light of our present knowledge. It would
not be foolish to contemplate the possibility of afar greater progress still.
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 than we are to‑day.
Assuredly there need be nothing here to surprise us.
Now it is true that the
needs of human beings may seem to be insatiable. But they fall into two classes
--those needs which are absolute in the sense that we feel them whatever the
situation of our fellow human beings may be, and those which are relative in
the sense that we feel them only if their satisfaction lifts us above, makes us
feel superior to, our fellows. Needs of the second class, those which satisfy
the desire for superiority, may indeed be insatiable; for the higher the
general level, the higher still are they. But this is not so true of the
absolute needs‑a point may soon be reached, much sooner perhaps than we
are all of us aware of, when these needs are satisfied in the sense that we
prefer to devote our further energies to non-economic purposes.
Now for my conclusion, which
you will find, I think, to become more and more startling to the imagination
the longer you think about it.
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. This means that the
economic problem is not‑if we look into the future‑the permanent problem of the human race.
Why, you may ask, is this so
startling? It is startling because‑if, instead of looking into the
future, 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‑not only of the human race, but of the whole of
the biological kingdom from the beginnings of life in its most primitive forms.
Thus we have been expressly
evolved by nature‑with all our impulses and deepest instincts‑for
the purpose of solving the economic problem. If the economic problem is solved,
mankind will be deprived of its traditional purpose.
Will this be a benefit? If
one believes at all in the real values of life, the prospect at least opens up
the possibility of benefit. Yet I think with dread of the readjustment of the
habits and instincts of the ordinary man, bred into him for countless
generations, which he may be asked to discard within a few decades.
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.
To those who sweat for their
daily bread leisure is a longed-‑for sweet‑until they get it.
There is the traditional
epitaph written for herself by the old charwoman:‑-
Don't
mourn for me, friends, don't weep for me never,
For
I'm going to do nothing for ever and ever.
This was her heaven. Like
others who look forward to leisure, she conceived how nice it would be to spend
her time listening‑in‑for there was another couplet which occurred
in her poem:‑
With
psalms and sweet music the heavens'll be ringing,
But
I shall have nothing to do with the singing.
Yet it will only be for
those who have to do with the singing that life will be tolerableand how few of
us can sing!
Thus
for the first time since his creation man will be faced with his real, his
permanent problem‑how 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.
The
strenuous purposeful money‑makers may carry all of us along with them
into the lap of economic abundance. But it will be those peoples, who can keep
alive, and cultivate into a fuller perfection, the art of life itself and do
not sell themselves for the means of life, who will be able to enjoy the
abundance when it comes.
Yet
there is no country and no people, I think, who can look forward to the age of
leisure and of abundance without a dread. 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, especially if he no longer has roots in
the soil or in custom or in the beloved conventions of a traditional society.
To judge from the behaviour and the achievements of the wealthy classes to‑day
in any quarter of the world, the outlook is very depressing! For these are, so
to speak, our advance guard‑those who are spying out the promised land
for the rest of us and pitching their camp there. For they have most of them
failed disastrously, so it seems to me‑those who have an independent
income but no associations or duties or ties‑to solve the problem which
has been set them.
I
feel sure that with a little more experience we shall use the new‑found
bounty of nature quite differently from the way in which the rich use it to‑day,
and will map out for ourselves a plan of life quite otherwise than theirs.
For many ages to come the old Adam will be so strong in us that everybody will need to do some work if he is to be contented. 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!
There are changes in other spheres too which we must expect to come. When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of many of the pseudo‑moral principles which have hag‑ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues. We shall be able to afford to dare to assess the money‑motive at its true value. 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. All kinds of social customs and economic practices, affecting the distribution of wealth and of economic rewards and penalties, which we now maintain at all costs, however distasteful and unjust they may be in themselves, because they are tremendously useful in promoting the accumulation of capital, we shall then be free, at last, to discard.
Of course there will still
be many people with intense, unsatisfied purposiveness who will blindly pursue
wealth‑unless they can find some plausible substitute. But the rest of us
will no longer be under any obligation to applaud and encourage them. For we
shall inquire more curiously than is safe to‑day into the true character
of this "purposiveness" with which in varying degrees Nature has
endowed almost all of us. For purposiveness means that we are more concerned
with the remote future results of our actions than with their own quality or
their immediate effects on our own environment. The "purposive" man
is always trying to secure a spurious and delusive immortality for his acts by
pushing his interest in them forward into time. He does not love his cat, but
his cat's kittens; nor, in truth, the kittens, but only the kittens' kittens,
and so on forward forever to the end of cat‑dom. For him jam is not jam
unless it is a case of jam to‑morrow and never jam to‑day. Thus by
pushing his jam always forward into the future, he strives to secure for his
act of boiling it an immortality.
Let me remind you of the
Professor in Sylvie and Bruno :
"Only the tailor, sir, with your little bill," said a meek
voce outside the door.
"Ah, well, I can soon settle his business," the Professor
said to the children, "if you'll just wait a minute. How much is it, this
year, my man?" The tailor had come in while he was speaking.
"Well, it's been a‑doubling so many years, you see,"
the tailor replied, a little grufy, "and I think I'd like the money now.
It's two thousand pound, it is!"
"Oh, that's nothing!" the Professor carelessly remarked,
feeling in his pocket, as if he always carried at least that amount about with
him. "But wouldn't you like to wait just another year and make it four
thousand? Just think how rich you'd be! Why, you might be a king, if you liked!"
"I don't know as I'd care about being a king," the man said
thoughtfully. "But it dew sound a powerful sight o' money! Well, I think
I'll wait‑"
"Of course you will!" said the Professor. "There's good
sense in you, I see. Good‑day to you, my man!"
"Will you ever have to pay him that four thousand pounds?"
Sylvie asked as the door closed on the departing creditor.
"Never, my child!" the Professor replied emphatically.
"He'll go on doubling it till he dies. You see, it's always worth while
waiting another year to get twice as much money!"
Perhaps it is not an
accident that the race which did most to bring the promise of immortality into
the heart and essence of our religions has also done most for the principle of
compound interest and particularly loves this most purposive of human
institutions.
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, that those walk most truly
in the paths of virtue and sane wisdom who take least thought for the morrow.
We shall once more value ends above means and prefer the good to the useful. We
shall honour those who can teach us how to pluck the hour and the day
virtuously and well, the delightful people who are capable of taking direct
enjoyment in things, the lilies of the field who toil not, neither do they
spin.
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. For only they can lead us out of the tunnel of economic
necessity into daylight.
I look forward, therefore,
in days not so very remote, to the greatest change which has ever occurred in
the material environment of life for human beings in the aggregate. But, of
course, 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 critical difference will be
realised when this condition has become so general that the nature of one's
duty to one's neighbour is changed. For it will remain reasonable to be
economically purposive for others after it has ceased to be reasonable for
oneself.
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.
Meanwhile there will be no
harm in making mild preparations for our destiny, in encouraging, and
experimenting in, the arts of life as well as the activities of purpose.
But, chiefly, do not let us
overestimate the importance of the economic problem, or sacrifice to its
supposed necessities other matters of greater and more permanent significance.
It should be a matter for specialists‑like dentistry. If economists could
manage to get themselves thought of as humble, competent people, on a level
with dentists, that would be splendid!
* Scanned from John Maynard Keynes, Essays in
Persuasion, New York: W.W.Norton & Co., 1963, pp. 358-373.