Advertisement

Book of the week: Keynes's animal spirits

Book review: Money and Government: A Challenge to Mainstream EconomicsMoney and Government sets out to rethink human behaviour, says Matthew Partridge.

910-Keynes-634
John Maynard Keynes: man is moved by animal spirits

Money and Government: A Challenge to Mainstream EconomicsRobert SkidelskyAllen Lane (£25)(Buy at Amazon)

The battle over what macroeconomic tools governments and central banks should use to stabilise the economy has raged ever since John Maynard Keynes published his General Theory in 1936. Ten years after the financial crisis, we are no closer to consensus.

Advertisement - Article continues below

In Money and Government: A Challenge to Mainstream Economics, Robert Skidelsky makes the case for an active fiscal and monetary policy, including boosting government spending when the economy is in recession.He argues that the call for austerity when times are bad is based on faulty assumptions about human behaviour.

The book is divided into four parts. The first deals with the development of macroeconomic theory up to World War I. This ranges from the debate over the British recoinage in 1696, when there was an attempt to take debased and counterfeit silver coins out of circulation, to the 19th-century debates over monetary policy and the development of the gold standard. The next section deals with the rise of Keynesian economics in the 1930s, and its decline in the 1970s and 1980s.

Skidelsky then moves on to the crisis of 2008, examining both its causes and governments' responses. The concluding chapter looks at how macroeconomics needs to evolve to meet the demands of the post-crash world.

Advertisement - Article continues below

As Skidelsky notes in the introduction, his book has its origins in a series of lectures he delivered to third year economics undergraduates at the University of Warwick, where he is emeritus professor of political economy. As a result, the book is long, dense and complicated. Even those who studied economics at school, or have a professional interest, may find it hard going in places. But his basic argument is easy enough tograsp.

Skidelsky argues that modern economics, while it has made some concessions to the thought of Keynes, is still fundamentally flawed because it is based on "economic man" the idea that everyone acts in a purely rational way, with perfect foresight.

In contrast, Keynes placed great emphasis on the "animal spirits" of sentiment and expectations. These are not always rational and create uncertainty, which discourages investment. Policymakers and economists need to incorporate these insights into their models and recognise that governments have an active role to play not just in stabilising the economy, but also intervening in decisions through regulation.

It's a shame that there is no condensed and simplified version of Skidelsky's learned book that could appeal to a non-specialist audience.As it is, the density of the arguments will deter a wider public from being converted to the author's vision.

Advertisement
Advertisement

Recommended

Theatre review: The Visit
Films

Theatre review: The Visit

Friedrich Dürrenmatt's Swiss classic The Visit, transported to 1950s America, poses the question: how much would you kill for?
28 Feb 2020
Six contrarian books for Christmas
Films

Six contrarian books for Christmas

Merryn Somerset Webb picks six of her favourite contrarian books to help you look clever and perhaps win a few arguments over the Christmas dinner tab…
9 Dec 2019
Coming to terms with Anna Sorokin
Films

Coming to terms with Anna Sorokin

My Friend Anna: The true story of the fake heiress of New York CityWilliams is a solid writer who does a good job of explaining how she, and other int…
21 Aug 2019
Book in the news… the inside story of Spain’s tumultuous crisis
Films

Book in the news… the inside story of Spain’s tumultuous crisis

After the Fall Crisis, Recovery and the Making of a New SpainA book that goes beyond politics to offer a deeply sympathetic portrayal of a country.
21 Aug 2019

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020
The MoneyWeek Podcast: how to age well and profit from the “longevity dividend”
Investment strategy

The MoneyWeek Podcast: how to age well and profit from the “longevity dividend”

Merryn talks to economist and author Andrew J Scott and discusses how we can profit from the "longevity dividend" as we live longer; why we need to re…
6 Aug 2020