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Keynes, fertility, and growth

15 May 2013 By Edward Hadas

“Keynes was a homosexual and had no intention of having children. We are NOT dead in the long run … our children are our progeny.” This tirade came from Niall Ferguson, the financial historian, Harvard professor and pundit, speaking in the third capacity at an investor conference two weeks ago. Though largely misguided, part of that comment is interesting. The idea that fertility has something to do with economics is due for a revival.

The sexual slur, for which Ferguson apologised, is tedious, as is the wilful misunderstanding of John Maynard Keynes’s quip: “in the long run we are all dead”. That was a complaint about the glib willingness of rival economists to endorse temporary suffering, which Keynes thought was largely unnecessary, for the sake of some distant good, which he thought was far from certain to arrive.

But Ferguson’s comment assumes, correctly, that our economic activity cannot be separated from an almost biological desire to create a good society which will endure into the future. In other words, there is a valid analogy between our biological drives to survive and reproduce and the economic desires to satisfy our needs and to thrive, now and in the future. Economists have captured the close ties of biology and society with two different images: growth and fertility.

Start with growth. We desire healthy and fast growth for the economy, just as we do for our progeny. The analogy is helpful and apt when economies are still in some sense young. Much as a child becomes more capable as well as larger as he or she follows their own version of the path to adulthood, an economy produces more and better goods and services as it catches up with more developed economies.

Eventually, though, human and economic childhoods both end. The child grows up; the economy becomes, in the professional jargon, developed or mature. The analogy suggests that growth should no longer be relevant to economics. So when economists hope for perpetual growth, as they generally do, they have abandoned this biological parallel.

They should move to another one: economic fertility. I have borrowed this combination of economics and biology from the ancient Greek word for interest on loans, “tokos”, which means “offspring”. The double meaning suggests that the interest payment is like a child spawned by the monetary principal.

The Greek philosopher Aristotle objected to this verbal analogy, because, he said, money cannot really reproduce itself. Medieval Aristotelians corrected their master. When the proceeds of loans fund further production, they create the economic analogy of nature’s reproduction; loans can be fertile, and in that case interest payments are a legitimate progeny.

I think the fertility image is too helpful to be limited to financial transactions. Everything economic – labour, consumption, investment, exploitation of resources – should be subject to the same test. Does it support an economy which will truly enrich future generations?

Unlike growth, which can be measured in GDP, economic fertility cannot possibly be analysed numerically. Indeed, GDP is quite different from economic fertility. The unpaid parental labour of childcare is fertile but not counted in GDP. The consumption of pornography is infertile but included.

To my knowledge, Keynes did not discuss fertility explicitly, but he made a valuable contribution to the debate, in what is probably his second most famous work, “Economic Possibilities for our Grandchildren”. The 1930 essay accurately predicted economic maturity – people freed “from pressing economic cares”. He then asks the crucial question – how these prosperous people can “live wisely and agreeably and well”.

His answer might surprise many self-professed Keynesians. Their master actually thought that growth in already mature economies was spiritually infertile. He compared the man who spends time and energy striving for yet more wealth, rather than profiting from the available bounty, one who does not “love his cat, but his cat’s kittens; nor, in truth, the kittens, but only the kittens’ kittens, and so on forward forever to the end of cat-dom”.

Keynes thought we should love the cat at hand – “pluck the hour and the day virtuously and well”. He suggested three-hour work days and dedicating the remaining time to the cultivation of whatever is best in the human spirit.

Ferguson’s angry comment was not aimed at this enlightened hedonism, but at the most common current interpretation of Keynes’ magnum opus, “The General Theory of Employment, Interest and Money”. That general theory is widely thought to demonstrate the need for more government action to pump up growth.

Ferguson the pundit thinks differently. He may be right, but I find the whole debate intellectually sterile. I would much rather hear from Ferguson the historian, an expert on the dismal period in which Keynes came of intellectual age. My question to him: after six decades of peace and increasing prosperity, how can Keynes’ cultural great-grandchildren create a truly fertile economy?


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