Measuring the modern economy against the predictions of John Maynard Keynes’ landmark 1930 essay, Paul Mason explores the promises of Keynes’ vision and the reasons why reality has fallen short.

This paper was delivered as the inaugural EFG-Charleston Keynes lecture at the Charleston Festival, 23 May 2014.

In 1930, while the world was still reeling from the impact of the Wall Street crash, John Maynard Keynes published a remarkable essay. In The Economic Possibilities for our Grandchildren he imagines a world where mankind’s ‘economic problem’ has been solved.[1]

By 2030, barring unforeseen wars and provided the population did not rise too fast, a combination of technological advance and rising wealth could mean that there was enough for everybody. This would be quite a big change, he points out, because the entire history of humanity has been determined by the fact that there was not enough for everybody.

‘For the first time since his creation,’ Keynes wrote, ‘man will be faced with his real, his permanent problem – how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.’

Scarcity had been the basic assumption of economics. As Leon Walras, the founder of marginalism, put it: ‘There are no products that can be multiplied without limit. All things which form part of social wealth … exist only in limited quantities.’[2]

Walras’ book is currently available in the unlimited quantity of one at Google Books; Keynes’ essay exists as a PDF on Yale University’s website, also free. And though the smartphone in your pocket is not free, if its an Android, its operating system has been created open source; and if you are googling the word ‘Walras’ you are using a service paid for by someone else, which will inevitably lead you first to a free encyclopaedia, Wikipedia, which makes all commercial encyclopaedias impossible. The web server you’re communicating with probably runs on software nobody is allowed to own.

Because of new technology, old things – as diverse as jet engines, art galleries and pornography – are suddenly alive with information. And that is adding a new dimension to economics. It casts Keynes’ original prediction about abundance in a new light.

Back in 1990, Paul Romer stated the earthshakingly obvious: information goods are infinitely copiable, and if the normal laws of the market operated then their price would rapidly decline towards the cost of production, which is zero or near-zero.

Even as we grapple with the aftermath of our own Wall Street crash, and live through our own version of the appeasement crisis, we’re facing a new problem: the rise of information goods whose abundance is probably an important indirect cause of our current state of low growth, high inequality and growing social unrest. And it may be the solution.

Understanding the economic realities

The Grandchildren essay was written by a man who still thought capitalism would spontaneously produce a society shaped by liberalism and aesthetics. The market would eventually provide for all – especially for a confident, socially adventurous leisure class whose purpose was to understand and create beauty.

That view had been dented by the first world war and would now be shattered by the Depression. So the essay – first delivered as a lecture in 1928 – stands as almost the last utterance of Keynes’ pre-crash world view.

Even in March 1930, when it was published, he was still confident that the world was simply going through a process of adjustment to higher productivity. Interest rates were too sticky, he wrote, not falling fast enough, and employment patterns were not adjusting fast enough to automation and rising productivity.

In 1930, the great wave of bank insolvencies that would trigger the Depression lay 12 months ahead. Hoover was in the White House; no developed country had yet left the gold standard; Ramsey MacDonald was still in Downing Street; the Nazis held just 12 of the 491 seats in the Reichstag.

As with all insights into the future, Keynes’ essay was full of misunderstandings about the present. Its underlying tone was ‘don’t worry, these are growing pains, the market will – with the help of governments – create the solution’. And that was wrong.

But there is something breathtakingly farsighted about the Grandchildren essay. At its heart is the proposition that one day:

  • capitalism will grow into something else
  • the cause will probably be technology
  • we will have a major psychological problem adjusting our lifestyles to a situation where money is not important
  • love of money will come to be seen as a disease
  • economics will become as mundane as dentistry.

Keynes’ premise is that the ‘absolute needs’ of humanity will be met by a combination of agricultural and manufacturing productivity, leaving us the option either to go on creating new needs or to ‘devote our further energies to non-economic purposes’. It’s the closest thing to the Hegelian-Marxist concept of aufhebung – spontaneous self-destruction and transcendence – that liberal economics ever produced. And of course it was designed as an affront to Marxism, which at the time was clamouring even at the walls of Cambridge.

Keynes looked into the future using three yardsticks: the rate of technical innovation, the growth of population and the growth of capital through compound interest.

He estimated that productivity would safely grow by at least 1 per cent a year, and that capital would grow at 2 per cent a year. If so, it was safe to assume that by 2030 the standard of living in advanced countries could be four to eight times what it was in 1930 – and if technology improved faster, eight times could be an underestimate. So what happened in reality? I will focus first on the UK.

According to the Maddison Project data on global GDP, which measures historic output in terms of 1990 US dollars, British GDP per head in 1930 was $5,441; by 1972 it was $11,294. So it took 42 years to double. If we switch to modern data from Trading Economics, and reset UK GDP per capita adjusted for inflation at $20,000 dollars in 1973, it takes 35 years to double, reaching $40,000 by 2008 – although it has fallen back now to just under $38,000.

That leaves us at below four times the 1930 level of output. To hit Keynes’ target, it has to double again in the next 15 years, to $80,000. The chances of this are slim. Even if GDP per head grows as fast as it did between 1992 and 2008, it would still take until around 2054.

Keynes urged his readers to ‘think of this in terms of material things – houses, transport and the like’. On that basis, life is immeasurably better. There were 10 million dwellings in the UK in 1931 and there are 27 million now – not yet four times the number, but of course of much higher quality and with more space per person. The automobile and airliner have taken over from the train journey as a measure of economic progress. Meanwhile, our actual grandchildren’s bedrooms are overfilled with cheap toys, and from a very young age they switch from toys to devices, some of which carry more computing and communication power than a warship did 30 years ago.

But what got in the way of Keynes’ GDP predictions for the developed world?

Obviously, first, the Depression. Keynes’ caveat – no major wars – was then confounded. And the population did grow significantly: there were 45 million people in Britain when he wrote the essay; there will be 70 million by 2030. But these changes alone do not explain why what he called ‘the power of compound interest’ failed to deliver.

If we take a broad overview of economic history since the Grandchildren essay, we could tell the following story. After the war, you get 30 years of high productivity combined with relatively low real rates of return on savings – because the inflation implicit in the global system Keynes designed helps to suppress the returns on financial capital. In fact, as Reinhart and Sbrancia point out, financial repression meant real interest rates were negative for at least half the years of the postwar boom.[3]

Then from about 1992 to 2008 you get an era of higher returns to capital but suppressed productivity growth. GDP per capita rises quite quickly but an ever-greater part of social wealth in developed countries is devoted to state-provided incomes and services. This creates a debt problem for states, soon followed by a debt problem for consumers.

So, if you wanted to be cruel, you could say that what got in the way of Keynes’ 1930 vision for capitalism was the postwar capitalism Keynes designed: first inflation, then the social state. I don’t say here that the social state should not exist or that it should be smaller; I just point out that it was 30 per cent of British GDP in 1930 and it is 45 per cent now.

However, we have to recognise that another of Keynes’ assumptions didn’t hold: the assumption that rising wealth brings equality. As Thomas Piketty has pointed out, the mid-20th century was a period of flattened inequality. It was logical to assume that development and innovation would go on flattening out inequality. But it hasn’t.

In the late 1970s, the ruling elites of the west decided capitalism could not coexist with organised labour. The project – beginning in Japan, then Britain and the US and pulling in Germany by 2002 – was to strategically weaken labour’s pricing power. The result is rising inequality within developed societies, alongside the financialisation of everyday life. Every recovery brings a new rise in income for the rich but not the poor. The middle class is hollowed out. As the Liberal Democrat adviser David Boyle has put it, the British middle class is set to be replaced by ‘a tiny elite and a long struggling, straggling line which is the rest of us, a new proletariat’.[4]

If we accept, as Piketty and others show, that modern capitalism is geared to boost asset wealth above incomes, inflation and GDP growth rates, then even rising per-capita GDP can lead to an increase in poverty among growing parts of the population. You get the oligarch’s yacht alongside the food bank, forever.

Apart from a requirement for a stable population, Keynes’ 1930 essay does not consider demographics, but as we know they are critical. Demographic ageing in countries like the UK will place a major strain on pensions, health and social care. Instead of being within reach of Keynes’ target of eight-times-GDP per head by 2030, we face big structural obstacles to reaching it.

However, that’s not the only problem. If it were, there would be a solution, albeit not one the political centre would accept.

A 21st-century Keynesian solution would propose a new, global rules-based currency system that makes the lopsided current account strategies of the major economies impossible and rebalances the world economy. There would have to be a new repression of financial profit – a new ‘euthanasia of the rentier’ – a new swing of distribution towards labour and away from capital, and a new upswing – akin to 1898–1913 or the postwar boom – in which technological innovation creates new demand faster than the old wants are satisfied.

This is the policy implication of Piketty’s book. If social democracy ever stops floundering around in the ruins of neoliberalism, that would be its new programme. But it doesn’t address the fundamental problem, or the opportunity.

The freedom of information

The fundamental problem is abundance – specifically the abundance of two things: information goods and labour. These exist in potential oversupply but alongside mechanisms that artificially constrain them, creating information monopolies and forcing the working hours of the majority to become both longer and more intense.

Romer points out that the natural state of an information economy was to create monopolies: only monopoly can prevent the market forcing the price of information goods down towards zero.[5] He wrote this in 1990, when Windows 95 was still on the drawing board, before Nokia’s 40 per cent market share came and went, before iTunes’ 95 per cent market share of online music was built up and eroded, and before Android phones took a 70 per cent share of all handsets sold. It was a great insight.

Conventional economic theory says monopolies are an anomaly: they will be naturally eroded by information – patents or skills – spilling over into the public domain, becoming essentially free. But for modern information companies, the entire business model is based on monopolising these spillovers, monetising as much as possible the value created by the network effect.

A growing number of heterodox thinkers – economists, lawyers and technologists – are convinced that such monopolies are doomed. They will be replaced with an economy in which large amounts of information are produced and exchanged if not for free then at negligible real prices. Alongside traditional production for the market and provision by the state, a third kind of activity is growing up: non-managed, peer-produced, non-market activity based around information.

Some, like the Harvard law professor Yochai Benkler and the French economist Yann Moulier Boutang, see this as a new kind of capitalism – a third capitalism, a cognitive capitalism – as different to industrial capitalism as that was to mercantile capitalism of the 17th and 18th centuries. The internet, Boutang writes, is ‘both the ocean and the galleon’ of this new economy: that is, it provides the way and the means to find the new El Dorado.

Others, myself included, believe the change is even more fundamental: that there is great social utility embodied in information but not enough value in the market sense. Once the monopoly model is eroded this is going to be like the conquest of the Americas, for sure, but without the gold.

Let’s think about a concrete example: iTunes. Technically we could all own every tune ever recorded. We would not need to own them, since they all exist on a server in Cupertino, California. We would just need an equitable means to listen to the ones we like.

Should the price be zero? Probably not – but how many perfectly playable vinyl records can be picked up for a penny. Should it be 99p per track? The ability to make the permanent price of every song on earth 99p suggests market forces hardly work in this space. A market price for a digital track would be somewhere between zero and 99p, and would vary.

A better question is: would the breakup of Apple and the rise of a music sharing and renting model deter a modern day artist from writing great music? Every rock band or pop singer you talk to complains that information technology is eating into their revenue, that they have to go on the road and sell merchandise to make money. They often say this is because of piracy.

But in this sense, rock bands are just facing the same problem as journalists, magazine writers, literary novelists and others face. The pricing power of their artistic labour no longer depends on a technological bottleneck: the publishing house, the record label, the printing press. What they don’t lose to pirates they lose to the rentier class – firms like Apple or Amazon who demand a massive distribution payment as the price of selling their wares via the internet. 21st-century kids who want to make a lot of money by artistic labour do so by creating things you can’t copy and have to physically either own or rent: computer games, TV drama series, visual art, jewellery.

Now, what applies to the pure information product also applies to the information content of real things.

A veteran aircraft engineer once told me they did 12 different stress tests on the tail-fin of a Tornado jet in the 1970s – and for its replacement, the Typhoon, they did 186 million. They built it virtually and flew it on a computer 186 million times. With modern aircraft, the entire process of manufacture is simulated, then the built object is flown on a computer – a little virtual man with a screwdriver walks up to the wing to see if he can get his hand in to adjust a virtual nut. The process of manufacturing an airliner is not like 3D printing, but it can be conceived as a copy-and-paste operation in a way the traditional engineering process, with its trial and error, could not. A modern airliner, once built, cannot be flown without a computer; in operation, it generates a constant stream of information to its makers in real time that is essential to the economics of running an airline.

We are living through a revolution in technology that is altering the relationship between information and physical things. But it is not being measured by conventional economics. Accountancy still sees the information as a dead ‘design’, sitting on the balance sheet like an asset. Economics has barely asked the question: what is information worth?

Creating new demands

Let’s come to the social implications: if the cost of information goods tends towards zero, and the ability to standardise and virtualise the manufacture of real things also rapidly reduces their cost, then the real price of labour will also fall because (a) supply exceeds demand and (b) the input costs of labour fall.

This is what I think underlies the surprise outcome of the neoliberal revolution – the impoverishment of the working class in the developed world. It looks like class struggle and defeat, but it may also be the product of a one-time technological revolution.

The idea was that technological progress would create new demand, so that even as the price of today’s goods gets cheaper – because of productivity – there are always new, more complex human needs that require higher-valued things and a higher-skilled workforce to create them.

That’s been capitalism’s get-out-of-jail card for 200 years, confounding Malthus, Ricardo and Marx, who each in their different ways believed there were limits to capital. It happened spectacularly in the Progressive Era, the second industrial revolution, when Victorian-era cities were suddenly populated with arts-and-crafts style pubs, cinemas, libraries, automobiles and electric lighting, prompting Virginia Woolf famously to declare: ‘on or about December 1910 human character changed’.

Clearly, human character is changing again under the impact of technology. But this third industrial revolution is having a different effect. Certainly there are more complex needs being created, but it’s not obvious how they will be commercialised.

‘Information wants to be free’, said the hippy-ideologue Stewart Brand – to which the open-source movement added: ‘free as in freedom’. If, then, physical goods are getting cheaper, the drivers of new demand will have to be energy – which has to get dearer – and services.

But services too can be automated. And so what we may be left with was the nightmare the French writer Andre Gorz envisaged: that just as it tried to privatise water in the 1980s, capitalism is forced to privatise and commodify simple human interaction. Just as we have sex work now, we might in the future have affection work, sympathy work, antiloneliness work. Gorz never argued that the commercialisation of ordinary human interaction was impossible. But he argued persuasively that it would be a microeconomy of decreasing value.

If authors like Gorz, Benkler and Boutang are right, then capitalism’s impulse to find new, more complex needs runs up against the failure of these needs to generate new and higher-value economic models.

Recapturing Keynes’ vision

The left, which has begun to grasp the challenge of financialistion and inequality, has hardly begun to explore the consequences of the rise of a third, peer-to-peer economy alongside the private sector and the state.

In May 2014, news headlines were dominated by a striking image: a Turkish political adviser in a suit kicking the relative of one of the 301 miners killed in the Soma disaster in the head, while he was on the ground being restrained by two security guards. Some saw the image as symbolic of the situation in Turkey; I think it’s a metaphor for the entire global situation since the fall of Lehman Brothers.

The bargaining power of labour was already low – hence the stagnation of real wages in many economies, the disappearance of high-skilled work, the return of slave-style work intensity and surveillance at work. Trust in politicians is minimal, hence the tendency for repeated and unpredictable social crises and protest movements to break out. When they do, ordinary people face a scale of repression – even for stepping off the pavement – that would have seemed, to Keynes’ generation, fascist. The most symbolic figure in the picture is the politician in his suit. To me, he represents the essence of oligarchic power.

In late neoliberalism, the iconic form of profit has become rent. The art of making money has become the art of cornering the supply of something – say, a coal mine – repressing its workforce, rigging politics in your favour so that pleas for better mine inspections are blocked, and registering your company in London to avoid paying tax. Anybody who objects can be kicked.

In fact, for the man in the suit, the added bonus was that he hurt his foot and was given a week’s sick leave; for the miners who went on strike for a day, in memory of their colleagues, there were, naturally, two days’ pay docked.

The current situation breeds not only a widening inequality of wealth but an inequality of power not seen in Keynes’ time outside fascist Italy or Stalin’s Russia. And I think it may end in tears again, with unchecked oligarchic governments like those of Putin, Assad and Erdogan repressing their own people while the democratic world elite stands by, convinced that its economic interests lie in supporting dictators against their own people and increasingly prepared to use surveillance and arbitrary power against populations in the west.

If we avoid this dire outcome, it will because the forces for good, for understanding and knowledge and restraint are also being strengthened by technology. I think we should imagine new technology creating the world of abundance Keynes longed for. But this is likely to be decoupled from the question of pure GDP growth and compound interest. And it won’t happen by 2030.

It will not be the transition Marxists imagined, led by the state which suppresses market forces, but a transition based on the controlled dissolution of market forces by abundant information and a delinking of work from income. I call this – following economists as diverse as Peter Drucker and David Harvey – post-capitalism.

To make it happen the main issue is not economics but power, and it revolves around who can envisage and create the better life. Keynes’ famous critique of Marxism was that by basing itself on the working class it asked too much of the intelligentsia. ‘How can I adopt a creed,’ he wrote, ‘which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeoisie and the intelligentsia, who with all their faults, are the quality of life and surely carry the seeds of all human achievement?’[6]

Now – thanks to education and technology – we have a mass intelligentsia. Yes, for sure, we have spoon-fed, tick-the-box learning in degree courses whose intellectual level Keynes would have scorned. But they have shown themselves willing to stand somewhere between the mud and the fish, and to be able to create science and art and ideas that make this a thrilling time to be alive. It was they who launched the Arab spring, the Quebec protests, Occupy, Taksim Square and the Russian democracy movement.

Personally, when I look at the picture of the miner and the man kicking him, I find it hard to prefer the fish to the mud. Placed for an hour in a modern Rolex store, or in any of the yachting ports where British politicians frequent the vessels of Russian oligarchs, I suspect Keynes might also find this whole ‘fish versus mud’ analogy less than useful.

Nonetheless, we’ve gone beyond the proletariat and the bourgeoisie. We have an educated demos alongside an underclass, and we’re all toiling in a social factory where every act of production, consumption and leisure sucks us into a system of value creation based on debt, finance and monopoly. While large parts of the population are forced to duck and dive – living their lives as individuals first, social beings second; expressing themselves with an endless stream of bleak ‘selfies’ – what’s amazing is how many of them already do as Keynes predicted and see the pursuit of money as a form of mental illness.

By 2030, according to the Oxford Martin School, 47 per cent of all US jobs – mainly in retail and services – will be automated. Automation used to mean the replacement of physical labour by machines; now it means the replacement of mental labour by software – and software is just a machine that never wears out and costs nothing to reproduce. Unless whole new industries grow up, based on whole new sources of economic demand, the purchasing power of the majority will fall – and ultimately there is only so much money you can print, and only so many asset bubbles you can stimulate, until it comes to a full stop.

Keynes imagined a future where rising wealth led to falling inequality. Instead, economic wealth has grown slower than he imagined, while physical wealth and information wealth have grown faster and begun to detach themselves from the value system. I think the moment is coming where we have to recognise this and ask what it would mean to redesign society just as radically as Keynes’ generation did in the mid-1940s. The opportunity is to structure the economy in a way that the non-economic takes over from the economic; where art and life merge, and where – as the Scottish writer Pat Kane puts it – the play ethic takes over from the work ethic.

I think a modern-day Keynes would be obsessed with this: how to decouple work from income, production from price, organisation from ownership. We know what he achieved in practice: a workable system that revived global capitalism. But he also dreamed of something better than a system based on the pursuit of money.

Amid the pressing challenges – eurocrisis, the rise of the far right, repression and political mistrust – the truely Keynesian thing to do is to imagine a human future based on abundance and freedom and to explore what tools we have around us that might make it come about.

Paul Mason is digital and culture editor at Channel 4 News, and the author of Why It’s Kicking Off Everywhere: The New Global Revolutions (Verso, 2012).

This article appears in edition 21.2 of Juncture, IPPR's quarterly journal of politics and ideas, published by Wiley.


1. Keynes JM (1930); reprinted Keynes JM (1963) Essays in Persuasion, New York: WW Norton & Co. Available at^back

2. Walras L (1874); trans Jaffé W (1954) Elements of Pure Economics: Or the Theory of Social Wealth, Homewood: Richard D Irwin Inc ^back

3. Reinhart C and Sbrancia MB (2011) The Liquidation of Government Debt, NBER working paper no 16893, Cambridge, MA: National Bureau of Economic Research ^back

4. Speaking at the Hay Festival; see Knapton S (2014) ‘Middle classes will disappear in next 30 years warns Government adviser’, Telegraph, 28 May 2014 ^back

5. Romer P (1990) ‘Endogenous Technological Change’, Journal of Political Economy, 98(5.2): S71–S102 ^back

6. Keynes 1963 ^back