Revisiting Keynes

Revisiting Keynes: Economic Possibilities for Our Grandchildren

Lorenzo Pecchi
Gustavo Piga
Copyright Date: 2008
Published by: MIT Press
Pages: 232
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    Revisiting Keynes
    Book Description:

    In 1931 distinguished economist John Maynard Keynes published a short essay, "Economic Possibilities for Our Grandchildren," in his collection Essays in Persuasion. In the essay, he expressed optimism for the economic future despite the doldrums of the post-World War I years and the onset of the Great Depression. Keynes imagined that by 2030 the standard of living would be dramatically higher; people, liberated from want (and without the desire to consume for the sake of consumption), would work no more than fifteen hours a week, devoting the rest of their time to leisure and culture. In Revisiting Keynes, leading contemporary economists consider what Keynes got right in his essay--the rise in the standard of living, for example--and what he got wrong--such as a shortened work week and consumer satiation. In so doing, they raise challenging questions about the world economy and contemporary lifestyles in the twenty-first century. The contributors--among them, four Nobel laureates in economics--point out that although Keynes correctly predicted economic growth, he neglected the problems of distribution and inequality. Keynes overestimated the desire of people to stop working and underestimated the pleasures and rewards of work--perhaps basing his idea of "economic bliss" on the life of the English gentleman or the ideals of his Bloomsbury group friends. In Revisiting Keynes, Keynes's short essay--usually seen as a minor divertissement compared to his other more influential works--becomes the catalyst for a lively debate among some of today's top economists about economic growth, inequality, wealth, work, leisure, culture, and consumerism. ContributorsWilliam J. Baumol, Leonardo Becchetti, Gary S. Becker, Michele Boldrin, Jean-Paul Fitoussi, Robert H. Frank, Richard B. Freeman, Benjamin M. Friedman, Axel Leijonhufvud, David K. Levine, Lee E. Ohanian, Edmund S. Phelps, Luis Rayo, Robert Solow, Joseph E. Stiglitz, Fabrizio Zilibotti

    eISBN: 978-0-262-28133-1
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Contributors
    (pp. ix-x)
  4. Acknowledgments
    (pp. xi-xii)
  5. Economic Possibilities for our Grandchildren: A Twenty-first Century Perspective
    (pp. 1-16)
    Lorenzo Pecchi and Gustavo Piga

    The idea for this book materialized one evening, as we were talking on the telephone about a short essay written by John Maynard Keynes in the early 1930s,Economic Possibilities for our Grandchildren. In the space of a few pages Keynes formulated a series of fascinating and daring predictions on social life and economic conditions one hundred years on, giving almost the impression of wishing to challenge posterity to put his predictions to test. This was a tempting challenge indeed, coming from a man considered by many as the greatest economist of the twentieth century, and a mighty challenge too,...

  6. 1 Economic Possibilities for our Grandchildren (1930)
    (pp. 17-26)
    John Maynard Keynes

    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...

  7. 2 Economic Possibilities for our Grandchildren 75 Years After: A Global Perspective
    (pp. 27-40)
    Fabrizio Zilibotti

    In the heart of the Great Crisis, amid great uncertainty and concerns surrounding the future of capitalism, John Maynard Keynes launched his optimistic prophecy that growth and technological change will allow humankind tosolve its economic problemwithin a century. He envisioned a world where people work much less and are less oppressed by the satisfaction of material needs. He made quantitative statements predicting that ʺthe standard of life in progressive countries one hundred years hence will be between four and eight times as high …ʺ as in his time. And he wrote about work time that ʺ… a fifteen-hour...

  8. 3 Toward a General Theory of Consumerism: Reflections on Keynesʹs Economic Possibilities for our Grandchildren
    (pp. 41-86)
    Joseph E. Stiglitz

    KeynesʹsEconomic Possibilities for our Grandchildrenis as fascinating for the hidden assumptions about the nature of man as it for the predictions—clearly wrong—about the evolution of the economy. Keynes suggests that because of the huge improvements in technological possibilities and accumulation of capital, theeconomic problem—providing the necessities of life—will be solved, opening up a new world, in which each of us could devote our energies to higher callings. He suggests moreover that many of the conventions and institutions of society have arisen to solve the economic problem; shorn of those needs, a whole new...

  9. 4 Whose Grandchildren?
    (pp. 87-94)
    Robert Solow

    Although it was not published until 1930, Keynesʹs essay was written early in 1928 and read to a student society at Winchester (an elite public school, maybe slightly more intellectual and slightly less aristocratic than Keynesʹs own Eton). Keynesʹs biographer, Robert Skidelsky, tells us that the piece was revised and read at other places before it was finally published.

    In 1928 theEconomic Journal, which Keynes edited, published Frank Ramseyʹs famous article ʺA Theory of Saving.ʺ That was an attempt to analyze how rapidly a community ought to accumulate capital and increase consumption. To make the mathematics work, Ramsey had...

  10. 5 Corporatism and Keynes: His Philosophy of Growth
    (pp. 95-104)
    Edmund S. Phelps

    Of the main contests in twentieth-century political economy, the contest between capitalism and corporatism still matters. And it matters quite a lot, as I believe the recent economic record of continental western Europe helps to confirm.¹ My discussion here of the economic thought of John Maynard Keynes will focus on his early ʺcorporatistʺ dissatisfaction with the market—a dissatisfaction that ran deeper than the Pigovian critique oflaissez faire, later known as the ʺfree marketʺ system.

    Before we can discuss Keynes in relation to corporatism and capitalism we have to ask: What do they mean now? And in what ways...

  11. 6 Back to the Future with Keynes
    (pp. 105-116)
    Lee E. Ohanian

    In the early stages of the Great Depression Keynes took time out from his role as a policy adviser, research economist, and economic journalist to writeEconomic Possibilities for our Grandchildren, an essay presenting his forecasts for the world economy of the twenty-first century. Published in 1930,Economic Possibilitiesreveals a fascinating and very different portrait of Keynes. The essay shows that Keynes had an understanding of modern economic growth that was at least twenty-five years ahead of his time. His views about long-run growth are very similar to todayʹs frontier growth theory, more so than his much better known...

  12. 7 Spreading the Bread Thin on the Butter
    (pp. 117-124)
    Axel Leijonhufvud

    The power of compound interest makes an almost irresistible mental plaything. Everyone succumbs to it once in a while. You can run it backward or forward. Backward, we find that the Dutch paid the Indians much too much in purchasing Manhattan. Keynes plays this game in tracing Britains overseas investments to the Queenʹs share in the depredations of Sir Francis Drake. Or you can play it forward as in the possibly apocryphal story of the mathematician attending a demography conference where everybody was lamenting the consequences of 2 percent population growth a hundred years hence. ʺAccording to my calculations;ʺ he...

  13. 8 Economic Well-being in a Historical Context
    (pp. 125-134)
    Benjamin M. Friedman

    Are we better off than our great grandparents? Do we lead happier, more satisfying lives than they did? And do we expect our great grandchildren to be happier, and more satisfied with their lives, than we are? In short, is there such a thing as human progress, and if so are we attaining it from one generation to the next?

    Today most citizens of economically advanced countries would probably point first to the achievements of modern medicine. Surely we are better off—and surely it makes us happier—that fewer of our children die as infants. It likewise matters that...

  14. 9 Why Do We Work More Than Keynes Expected?
    (pp. 135-142)
    Richard B. Freeman

    Pondering the increase in income per head of 2 percent or so per year in the United Kingdom and other advanced countries for a century or so, which thanks to the power of compound interest raised incomes eightfold, Keynes foresaw a future world free from economic cares. He predicted that incomes would increase massively in the next hundred years and that the higher standard of living would produce an unparalleled era of leisure, where humans would work ʺthree hour shifts or a fifteen hour weekʺ and ʺdo more things for ourselves … only too glad to have small duties and...

  15. 10 Context Is More Important Than Keynes Realized
    (pp. 143-150)
    Robert H. Frank

    The standard of living in the United States, as measured by GDP per capita, has increased more than fortyfold since the end of the eighteenth century. In his 1930 essay,Economic Possibilities for our Grandchildren, John Maynard Keynes joined a large group of distinguished thinkers who have predicted that people would experience great difficulty filling their days once productivity increases eliminated the necessity to spend more than a token amount of time working. These fears seem unfounded, even comical, in retrospect. Productivity has continued rising sharply, sure enough, yet people are still working just as hard as ever.

    Keynes was,...

  16. 11 The End of (Economic) History
    (pp. 151-160)
    Jean-Paul Fitoussi

    Some papers, for reasons that remain at least partially obscure, leave a persistent trace in intellectual history. Such is the case with KeynesʹsEconomic Possibilities for our Grandchildren, although it never attracted much attention within the economic profession, besides reference here and there to the power of simple economic calculations: ʺThe greatest economists of my lifetime have been extraordinarily wise in guessing by rule of thumb what the more elaborate models of the cliometricians will derive after tedious calculationʺ (Samuelson 1983). A possible explanation is that Keynes, in freeing himself from economic rigor, is attempting to unveil his moral philosophy....

  17. 12 All the Interesting Questions, Almost All the Wrong Reasons
    (pp. 161-178)
    Michele Boldrin and David K. Levine

    Here is the bottom line: Keynes got his economic theory wrong, and the facts too. But, and not a minor feat, he got all his questions and his guess about the future right. This may prove that while the man was a tad arrogant, he perhaps was not a fool. Perhaps, indeed, he was brilliant, possibly so much so that he never had to bother with logical consistency and facts adequate to convince his audiences that he had got it right. That is a pity, because he could have spared humanity a whole lot of poor economic advising, and academic...

  18. 13 Why Keynes Underestimated Consumption and Overestimated Leisure for the Long Run
    (pp. 179-184)
    Gary S. Becker and Luis Rayo

    Keynesʹs short article, published in 1930, gives a remarkably optimistic, and in many ways prescient, assessment of the long-term economic future of the Western world, even while Britain and many other nations were immersed in a major depression. Keynes argues that the depression would be temporary, and that eventually growth would resume at the pace Britain and other nations in the economically advanced world had experienced since the early nineteenth century. That was a brave and in large measure accurate forecast of future growth over the long term. Actual British and American incomes have already grown some four- to fivefold...

  19. 14 What Is Wrong in Keynesʹs Prophecy? How the End of Economics Turned into the Rise of the Economics of Social Responsibility
    (pp. 185-198)
    Leonardo Becchetti

    Predicting what humankind is going to be in the future is a fascinating but daunting task. Despite our theoretical and empirical progress in economics and in social sciences, we are able today, at best, of ʺdoing good historyʺ by interpreting and describing rigorously (with the help of statistics and econometrics) what has happened in the recent past. Whereas, as it is well known, our capacity to predict the near future is akin to that of car driver who decides what direction to take by looking out the rear window. This is all the more so for Keynes as the tools...

  20. 15 Really Thinking Long Run: Keynesʹs Other Masterpiece
    (pp. 199-206)
    William J. Baumol

    Economic analysis offers us weapons like the Ricardian growth model that are designed to help us think about the very long run—about the wonders that history has achieved and what it promises for the future. But few of us take the bait. Economists are all too prone to provide forecasts for the next few months, or even a year or two ahead. Economistsʹ record at this is not quite brilliant, so it should come as no surprise that, seventy-five years after John Maynard Keynes undertook to look a century ahead, it is clear that much of what he foretold...

  21. Index
    (pp. 207-216)