Keynes: 2030 from 1930

The economist John Maynard Keynes, writing in 1930[1], mused on what was wrong with the economy of his day and what the following century would bring. He concluded the world was going through a tumultuous phase of the passing away of one economic paradigm for another. According to Keynes:

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.

Keynes noted that productivity had grown – and was continuing to grow – rapidly in the west. He speculated “in our own lifetimes … 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”. He coined the term Technological Unemployment to describe how, as productivity rises faster than demand, fewer and fewer workers are required to service the world’s needs; and thus fewer are employed at any given wage.

The classical economic response to such a reduction in demand for labour services is to reduce the price i.e. the real wage will fall. Hence, as capital is substituted for humanity, productivity rises, but wages and/or employment decline. The application of classical economic theory will lead to a new equilibrium. If the market clearing wage falls below than the living wage, an increasing proportion of the population will simply not be able to support themselves in the economy.

Technological unemployment, Keynes suggested, was inevitable where the benefits of productivity growth were not evenly shared. The solution is to recognise, as productivity increases, hours worked might decline rather than wages and employment. Keynes suggested eventually a fifteen-hour working-week would be sufficient to produce all that civilisation required; thus wages, leisure and standards of living might increase for all (rather than decline for many) as productivity increases. However, if all are to share the benefit from increases in labour productivity, we require a change of economic world-view. Rather optimistically (as we now see with hindsight) Keynes wrote “I see us free, therefore, to return to some of the most sure and certain principles of … traditional virtue – that avarice is a vice, that the exaction of usury is a misdemeanour, and the love of money is detestable”.

More than eighty years have passed and we find ourselves in the second decade of the 21st century; there are still seventeen years before 2030, when Keynes foresaw the transition would be over and we would enjoy “economic bliss”. In the intervening period, various political-economic approaches have been tried: fascism, communism, socialism, Stalinism, Keynesianism (the so-called Golden Age of Capitalism), Thatcherism, monetarism, consumerism, market fundamentalism, nationalism and, most recently, austerity – and yet we find ourselves in western economies suffering problems not dissimilar to those of the 1930s. Since the west’s abandoning of Keynesian policies in the 1970s, real wage growth has failed to keep up with productivity growth and, according to Jim Clifton of Gallup, there is 1·8 billion too few good jobs world-wide.

This situation is likely to deteriorate as the digital revolution reduces employment opportunities in retailing and a new industrial revolution reduces employment opportunities in manufacturing. Similarly in the service sector, automation is stripping humans out of the supply chain in jobs such as bank cashiers, taxi and lorry drivers, doctors and even lawyers. In short, technological unemployment is likely to continue to increase as we move to a more capital intensive, robotic economy. Although many of these technologies are in their infancy, according to MIT technology review, “in the race against the machine, some are likely to win while many others lose”. There are those who blame the unemployed themselves for this decline in opportunities, others suggest this makes about as much sense as blaming shire horses for their displacement by the tractor. What is clear is that technological unemployment is not going away anytime soon, rather the opposite.

Meantime, the physical and ecological constraints of the earth imply western societies’ needless conspicuous consumption, planned obsolescence, and the ever-changing dictates of fashion are not sustainable. We already exist in a situation of 25% to 30% ecological deficit per year – implying we should be seeking to shrink, rather than grow, overall demand if we hope to achieve ecological sustainability: This will further impact on the availability of employment in the market.

There is no one solution to this on-going employment crisis; indeed, we suggest no solution is possible without a return to Keynes’ “traditional virtue”.

Kevin Albertson


1 Keynes, J.M. (1930) Economic Possibilities for our Grandchildren, reprinted in Essays in Persuasion, New York: W.W. Norton & Co., 1963, 358-373.

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