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12 June 2014updated 24 Jun 2021 1:00pm

Paul Mason: what would Keynes do?

The revolution in IT and how it is transforming our world in ways that even economists are struggling to understand.

By Paul Mason

Low’s caricature of Keynes for the NS, 1933

In 1930, while the world was still reeling from the impact of the Wall Street crash, John Maynard Keynes published a remarkable essay: in “Economic Possibilities for Our Grandchildren” he imagined a world where, as he put it, mankind’s “economic problem” has been solved. By 2030, barring unforeseen wars and given the population did not rise too fast, a combination of technological advance and rising wealth could leave enough for everybody.

This would be quite a big change, he pointed out, because the entire history of humanity has been determined by there not being enough for everyone.

“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.”

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Scarcity had been the basic assumption of economics. As Léon Walras, the founder of marginalist economics, 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.”

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Walras’s book is currently available in the unlimited quantity of one from Google Books; Keynes’s essay exists as a PDF on Yale University’s website, also free. And although the smartphone in your pocket is not free, if it’s an Android its operating system has been created open-source; and anyone googling “Walras” is using a free service that invariably leads to a free ency­clopaedia, Wikipedia, which makes all commercial encyclopaedias impossible. The web server you’re communicating with runs on software nobody is allowed to own. That is adding another dimension to economics. It casts Keynes’s original prediction about abundance in a new light.

It was the economist Paul Romer who in 1990 stated the earth-shakingly obvious: information goods are infinitely copiable and, if the normal laws of the market operated on them, 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, we are facing a new problem: the rise of information goods whose abundance is probably the indirect cause of – and solution to – our current state of low growth, high inequality and growing social unrest.


Keynes imagined and fought for a society based on liberalism and aesthetics. The market would eventually provide for all and create a confident, socially adventurous leisure class, whose purpose was to understand and create beauty – and to work as little as possible. That view had been dented by the First World War and would now be shattered by the Depression. So the “grandchildren” essay stands as almost the last utterance of Keynes’s pre-Depression world-view.

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

So, as with all insights into the future, Keynes’s essay is full of misunderstandings about the present. (In 1930 the great wave of bank insolvencies that triggered the Depression lay 12 months ahead. Herbert Hoover was in the White House, no developed country had yet left the gold standard, Ramsay MacDonald was still in Downing Street and the Nazis held just 12 of the 491 seats in the Reichstag.) Its underlying tone is: don’t worry, these are growing pains; the market will – with the help of governments – create the solution. And that was wrong.

Yet there is something breathtakingly far-sighted about the “grandchildren” essay. At its heart is the proposition that one day:

• capitalism will grow into something else;

• if that happens the cause will probably be technology;

• we will have a major psychological problem adjusting our lifestyles to a situation where money is not important;

• the love of money will come to be seen as a disease;

• economics will become as mundane as dentistry.

Keynes looks 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 at least 1 per cent per year, and that capital would grow by 2 per cent per 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? Take just the case of 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. It took until 1972 to double, to $11,294.

If we switch to modern data, from Trading Economics, we can reset UK GDP per capita, adjusted for inflation, at $20,000 in 1973. It doubles to $40,000 by 2008, falling back to just under $38,000 today. That leaves us at below four times the output per head in 1930. So, to hit Keynes’s target, it has to double again in the next 15 years to $80,000. The chances of this happening are few. Even if GDP per head grows as fast as it did between 1992 and 2008 ($1,000 a year) it will take until about 2054 to achieve the target.

You will be thinking: but we feel so much better off in material terms. What about all the plastic toys that clutter our own grandchildren’s bedrooms? What about the iPods? And what about China and Mexico? But first, what got in the way of Keynes’s predictions for the developed world?

Obviously, first, the Depression, which lasted most of the 1930s. Keynes’s caveat – no major wars – was 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. Yet these changes alone do not explain why what he called “the power of compound interest” failed to deliver.

If we take a very broad overview of economic history since the “grandchildren” essay, we could say: after the war, you get 30 years of high productivity combined with relatively low real rates of return on capital, because the inflation implicit in the global system Keynes designed helps suppress the returns on financial capital.

In fact, as Carmen Reinhart and Belen Sbrancia pointed out in their celebrated paper for the National Bureau of Economic Research in 2011, financial repression – as it has been called – left real interest rates negative for at least half of the postwar boom.

Then – from about 1992 to 2008 – we experienced an era of high returns on capital but suppressed productivity growth. GDP per capita rose relentlessly but an ever greater part of social wealth in developed countries is devoted to state-provided incomes and services, and this creates a debt problem for states, soon followed by a debt problem for consumers.

If you wanted to be cruel, you could say that two legacies of Keynes got in the way of his ultimate vision for capitalism: first inflation, then the social state. This is not to suggest that the social state should not exist, or that it should be smaller: just to state that it was 30 per cent of British GDP in 1930 and is 45 per cent now.

Here we have to recognise that another of Keynes’s assumptions didn’t hold: the assumption that rising wealth brings equality. As the French economist Thomas Piketty has pointed out in his book Capital in the 21st Century, the middle of the 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 elite of the west decided that capitalism could not coexist with organised labour. Their project – beginning in Japan, then Britain and the US and pulling in Germany by 2002 – was to weaken labour’s pricing power strategically. The result is rising inequality in developed societies: every recovery brings a new rise in income for the rich but not the poor. The middle class is hollowed out.

Under these conditions even rapidly rising GDP can lead to the increase in poverty among growing parts of the population. You get the oligarch’s yacht alongside the food bank, for ever.

Seen on this basis, the future does not look bright. Demographic ageing in countries like ours will place a huge strain on pensions, health and social care. As a result, the ratings agency Standard & Poor’s believes that by 2050, even with the post-crash austerity measures, ageing will turn 60 per cent of all sovereign nations’ bonds to junk: not safe to lend to.


However, inequality and low growth, alongside high returns on financial capital and challenging demographics, are not the fundamental problem. If they were, there would be a solution – albeit one that seems too radical for the political centre now: a global rules-based currency system that would make the mercantilist strategies of Germany, Japan and China impossible and rebalance the world economy; a new repression of financial profit, a new swing of distribution towards labour and away from capital, and a phase in which technological innovation would create new demand faster than the old wants are satisfied.

The fundamental problem is abundance of two things: information goods and labour – but coupled with mechanisms that artificially constrain the supply of information and force the work of the majority to become ever more intense.

In 1990, in his paper for the Journal of Political Economy, Romer pointed out that the natural state of an information economy was to create monopolies: only monopoly could prevent the market forcing the price of information goods towards zero. He wrote this when Windows 95 was still on the drawing board, before Nokia built and destroyed its 40 per cent market share, before iTunes built its 95 per cent market share of online music and saw it eroded, before Android phones took 70 per cent of all handsets sold. It was a great insight.

Conventional economic theory said monopolies were an anomaly; they would be eroded naturally by information, or patents, or skills, spilling over into the public domain, becoming essentially free. But modern information companies’ entire business model is based on monopolising these spillovers. A growing number of heterodox thinkers – economists, lawyers, technologists – are convinced that such monopolies are doomed. They will be replaced with an economy where large amounts of information are produced and exchanged at negligible real prices, if not for free.

Alongside conventional 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, or the French economist Yann Moulier-Boutang, see this as a new kind of capitalism – a cognitive capitalism – as different from industrial capitalism as that was from the mercantilism of the 17th and 18th centuries. The internet, Moulier-Boutang writes, is “both the ocean and the galleon” of this new economy: 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, and that once the monopoly model is eroded this is going to be like the conquest of the Americas, but without the gold.

Take a concrete example: iTunes. Technically we could all own every tune ever recorded. We would not need to own them, because 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? Did the Beatles make the record so that Apple could charge 99p per download for it long after they were all dead, passing to their estates a maximum of 33p and pocketing two-thirds?

A better question is: would the break-up of Apple and the rise of a music-sharing and renting model deter a modern-day group from writing great music? Every rock band or pop singer you talk to complains that information technology is eating into their revenue, and they have to go on the road to sell merchandise in order to make money. They often say this is because of piracy. But, in a sense, rock bands are just facing the same problem as journalists, magazine writers, literary novelists 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 such as Apple or Amazon, which demand a hefty distribution payment as the price of selling your wares via the internet.

Twenty-first-century kids who want to make a lot of money by their artistic labour do so by creating things you can’t copy and that you have either to own or rent: computer games, TV drama series, contemporary visual art and jewellery. Now, what applies to the pure information product also applies to the information content of real things.

A veteran aircraft engineer told me he and his colleagues 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 and 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. A modern airliner, once built, cannot be flown without a computer and generates a stream of information to its makers in real time that is essential to the economics of running an airline.

Everyday products are alive with information in the same way as an art gallery is alive once you’ve rented one of those audio guides. A lecture is not just an analog event but a virtual conversation, as people tweet about it. Familiar objects suddenly have an information content.

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 begun to ask: what is information?


Consider 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, the real price of labour will also fall because a) supply exceeds demand and b) the input costs fall.

That is what I think underpins the surprise outcome of the neoliberal revolution: the impoverishment of the developed-world working class. It looks like the outcome of class struggle and defeat, but it may also be the product of a one-time technology event.

The idea was that technological progress would create fresh demand, so that even as the price of today’s goods got cheaper (because of productivity) there would always be new, more complex human needs created that require higher-valued things and a higher-skilled workforce to create them. That has been capitalism’s get-out-of-jail card for 200 years, confounding Malthus, Ricardo and Marx, each of whom in his own way 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, electric lighting . . . prompting Virginia Woolf to declare that “on or about December 1910, human character changed”. And sure enough human character is changing again, under the impact of technology. This third industrial revolution is having a different effect, however: 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 hippie-ideologue Stewart Brand – to which the open-source movement added: “free as in freedom”. If physical goods are getting cheaper the drivers of demand are of course energy (which has to get dearer) or services. But services, too, can be automated. And so what we may be left with is the nightmare the French writer André Gorz envisaged: that just as it tried to privatise water in the 1980s, capitalism is forced to privatise and commodify simple human interaction. That just as we have sex work now, we might have affection work, sympathy work, anti-loneliness work in the future.


Yusuf Yerkel, an adviser to the Turkish PM, assaults a protestor in Soma, 14 May. Photo: AP

Recently the news headlines were dominated by a striking image: a Turkish political adviser in a suit kicking the relative of one of 301 miners killed in the Soma disaster, as the man lay on the ground and was restrained by two security guards. Some saw the image as symbolic of the situation in Turkey. I think it is a metaphor for the 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 unpredictable social crises and protest movements to break out repeatedly. When they do, ordinary people face a scale of repression, even for stepping off the pavement, that would have seemed to Keynes’s generation simply fascist.

The most symbolic figure in the picture is the man in the suit. He represents the essence of oligarchic power. For him, 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.

In late neoliberalism, profit has become primarily rent. The art of making money has become the art of cornering the supply of something, repressing its workforce, rigging politics in your favour so that pleas for better regulation are blocked and registering your company in such a way as to avoid paying tax. Anybody who objects can be kicked.

The present situation breeds not only a widening inequality of wealth but an inequality of power not seen in Keynes’s time except in Fascist Italy or Stalin’s Russia. I think it may all end in tears again – with unchecked oligarchic governments such as those of Vladimir Putin and Recep Tayyip Erdogan repressing their population with tear gas and arbitrary detention, while the democratic-world elite stands by, once again convinced that its economic interest lies in supporting dictators against their own people, and increasingly prepared to use repression, surveillance and arbitrary power against their own populations.

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 it is likely to be decoupled from the question of pure GDP growth and compound interest.

It won’t happen by 2030. It will not be the transition Marxists imagined, led by the state suppressing 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. In making it happen, the main issue is not economics but power, and it revolves around who can envisage and create the better life.

Keynes’s critique of Marxism was that by basing itself on the working class it asked too much of the intelligentsia. He wrote in 1925: “How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above bourgeois and the intelligentsia, who, with whatever faults, are the quality of life and surely carry the seeds of all human achievement?”

Well, now (thanks to education and technology), we have a mass intelligentsia: yes, for sure, spoon-fed tick-box learning on 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 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 spring, Occupy, Taksim Square and the Russian democracy movement.

When I look at the picture of the miner’s relative and the man kicking him, I find it hard to prefer the fish to the mud. I suspect that Keynes, placed for one hour in a Rolex store, or in any of the yachting ports where British politicians frequent the vessels of Russian oligarchs, might also begin to find this whole “fish v mud” thing not so useful. But we have gone beyond the proletariat and the bourgeoisie. We have an educated demos alongside an underclass, and we are 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, monopoly.

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 based on whole new sources of economic demand grow up, 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 more slowly than he imagined but physical and information wealth has grown faster and begun to detach itself from the value system. The moment is coming where we have to recognise this and redesign society as boldly as Keynes’s generation did in the mid-1940s.

I think a modern-day Keynes would be obsessed with 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 – Eurofascism, repression, stagnation, political mistrust – the true Keynesian thing to do is to imagine a humanist future based on abundance and freedom, and explore what tools we have that might make it come about. There is no better time to imagine it.

A new international award, the Charleston-EFG John Maynard Keynes Prize, was launched on 23 May at the inaugural Keynes Lecture, given by Paul Mason