John Maynard Keynes’s 1930 musings on the economy’s future still echo several critical aspects, though they’ve evolved in the context of a 21st-century world.
Technological Unemployment
Keynes’s prediction about technological unemployment is a concern that remains prominent today, magnified by the advances in AI, robotics, and automation. Many industries today have been disrupted by technologies that have dramatically reduced the need for human labor in fields ranging from transportation (with self-driving vehicles) to customer service (with AI chatbots). However, as in the 1930s, new industries and professions had also emerged, reflecting the enduring adaptability of the labor market.
Economic Progress
The prediction that the standard of life in progressive countries would rise four to eight times is arguably accurate when considering advancements in technology, medicine, and overall quality of life. The growth of the digital economy, especially after the COVID-19 pandemic, has propelled new forms of commerce, work, and communication, reshaping how we view economic progress.
Compound Interest and Investment
Keynes outlined that the power of compound interest is still a fundamental finance principle in 2023. However, the rise of decentralized finance platforms and digital assets like cryptocurrency have introduced new investment and capital accumulation paradigms, challenging traditional banking and financial systems.
Globalization
While Keynes focused on the growth and potential of Great Britain, by 2023, the world’s economic landscape has become much more multipolar. Countries like China, India, and various African nations have seen significant growth, shifting the global economic balance.
Environmental Concerns
One aspect not on Keynes’s radar in 1930 but of paramount importance in 2023 is sustainability and the environmental effect of rapid industrialization. The climate crisis and the urgent transition to sustainable energy sources have become central economic and political issues.
Social and Political Shifts
The socioeconomic divide, partially due to rapid technological advancements, has led to significant political shifts worldwide. By 2023, populism, nationalism, and debates over inequality have influenced global politics in ways Keynes might not have anticipated.
Mental Health and “Economic Problem”
As societies have grown wealthier and more technologically advanced, mental health issues and questions about the meaning and purpose of work in an automated world have become more pronounced. Keynes’s idea that solving the economic problem would lead to a kind of utopia needs to be reassessed in light of these challenges.
Enjoy the first of his thoughts on the economic possibilities for our grandchildren, written in 1930.
Economic Possibilities for Our Grandchildren
(1930)*
Adapted from 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 that characterized 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 labor 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 that ensue relate to not more than 7½ percent 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; 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 percent greater than the corresponding surplus of the United States. Or again, it is to be a matter of comparison 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 percent 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, and the disastrous mistakes we have made blind us to what is happening under the surface and the true interpretation. of the trend of things. 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.
In this essay, however, my purpose 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 great change in the standard of life of the average man living in the civilized centers of the earth. Ups and downs, certainly. Visitations of plague, famine, and war. Golden intervals. But no progressive, violent change. Some periods perhaps So percent better than others sat the utmost 100 percent 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 the remarkable absence of important technical improvements and 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 that really matters and that 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 that we have today, wheat, barley, the vine and the olive, the plow, 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 today. But there was nothing of the kind through the greater part of recorded history.
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.
Let me give an illustration of this a sum that I have worked out. Great Britain’s foreign investments today are estimated at about £4,000,000,000. This yields us an income at the rate of about 6½ percent. Half of this we bring home and enjoy; the other half, namely, 3¼ percent, we leave to accumulate abroad at compound interest. Something of this sort has now been going on for about 250 years.
I trace the beginnings of British foreign investment to the treasure that 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 £40,000 accumulating at 3 percent compound interest approximately corresponds to the actual volume of England’s foreign investments at various dates and would actually amount today 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 the 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 catalog.
What is the result? In spite of the 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. Capital growth has been on a scale far beyond a hundredfold of what any previous age had known. And from now on, we need not expect so great an increase in population.
If capital increases, say, 2 percent per annum, the capital equipment of the world will have increased by half in twenty years and seven and a half times in a hundred years. Think of this regarding material things—houses, transport, and the like.
At the same time, technical improvements in manufacturing 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 percent 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 percent 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 that have already taken place in mining, manufacturing, 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 manufacturing 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 and 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 economizing the use of labor, outrunning the pace at which we can find new uses for labor.
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 today. There would be nothing surprising in this, even in the light of our present knowledge. It would not be foolish to still contemplate the possibility of far greater progress.
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