Keynes , Hayek , and the Roots of Complexity Theory in Economics
John Maynard Keynes ( 1883 – 1946 )
was known to his friends for infectious optimism . Contemporary political economy is infused with that optimism . Perhaps his most important legacy to political economy is his confidence that policy should elicit positive expectations about future opportunity . If you encourage a positive conception about the future , you may succeed in inducing behavior that ultimately reinforces those expectations ( Keynes , 1949 , pp . 161 – 163 ). 1 If you fail to inspire positive expectations , the worst kind of economic behavior , hoarding , will result . “ The weakness of the inducement to invest , he writes in the General Theory of Employment , Interest , and Money , “ has been at all times the key to the economic problem ” ( Keynes , 1949 , p . 317 ).
Keynes linked global economic growth and global peace to confidence in the future . The propensity to investment hinges on the “ delicate balance of spontaneous optimism ” ( Keynes , 1949 , p . 152 ). The goal of economic policy , he wrote , is to encourage certainty about the economy ’ s prospects . When people lack certainty , they hold on to their cash and to whatever else they believe is a store of value . But in so doing , they cause others to lower their own expectations , and the economic horizon recedes for everyone . To remedy this propensity toward hoarding , Keynes suggested , a government can stimulate the stream of positive expectations through expansionist fiscal and monetary policy that would , in turn , induce
1 Keynes ’ s discusses hoarding ( Keynes , 1949 , p . 174 ).
2 By “ the human economic problem ” Keynes seems to be referring to the basic human need for food and shelter , not the business cycle .
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the stream of investments necessary for the attainment of a society ’ s highest aspirations .
Keynesian economics is fundamentally about finding and directing policy interventions toward the attainment of a positive set of expectations , i . e ., finding the upper bounds for expectations about market growth . Expenditure creates its own income , and if individuals do not spend , the state is obligated to do so . By this reasoning , we can infer that “ secular stagnation ” was the natural condition of humanity throughout most of history . On that propensity to secular stagnation , Keynes writes , “ It is impossible to study the notions to which the mercantilists were led by their actual experiences , without perceiving that there has been a chronic tendency throughout human history for the propensity to save to be stronger than the inducement to invest ( Keynes , 1949 , p . 317 ).” Thus he rejected the laissez faire policy approach just as he opposed revolution through violent change as being errors of pessimism .
His frequently cited article “ Economic Possibilities for our Grandchildren ” ( Keynes , 1931 ), published in the early years of the Great Depression , voiced the case for optimism . What he called humanity ’ s “ economic problem ” would eventually be solved . 2 The fears of his contemporaries , that “ the rapid improvement in the standard of life is now going to slow down ,” would prove unfounded ; and since that prediction almost a century ago , world econom-