Keynes and the solved economic problem

While many have dusted off Keynes during the last few years and asked “what would Keynes do”, it is fair to question whether Keynes would have done anything at all. If he were here today, he might be writing a mountain of blog posts and opinion pieces, but from the perspective of 1930, it is unclear whether he would consider the developed world to have a problem. In his essay Economic Possibilities for Our Grandchildren (pdf), he figured that over the next 100 years the economic problem might be solved:

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.

Keynes’s prediction of massively improved living standards has come true. By that measure the economic problem is solved. Once solved, Keynes foresaw that we could turn our attention to areas other than the economic problem, such as leisure and science. People would no longer need to work endlessly to meet basic needs. However, he did see some constraints:

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.

The recognition that many human beings care about relative status fits comfortably with an evolutionary view of humans, whereby higher fitness depends on competition with other humans. However, when Keynes turns to evolution, he misses the core driver of this competition:

[I]f, 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.

Evolution is not only about subsistence and survival. It is also about reproductive success and the raising of viable offspring. While the economic problem is largely solved as it relates to survival, the question of reproduction remains. Keynes’s vision that people would cease to worry about accumulating wealth is unlikely to be realised as long as humans remain human and reproductive success is linked to status, wealth and power.

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