Earlier this week, I came across an interesting speech delivered by John Maynard Keynes to, of all people, the Eugenics Society in 1937. The speech, titled Some Economic Consequences of a Declining Population, argues that a declining population may not result in economic growth. While declining population does stem the Malthusian pressures that worried most demographers, Keynes argues that these declines may also lead to unemployment as businesses (failing to predict the decline in demand resulting from a smaller population) over-invest and thus produce a glut of goods and services, leading to a period of high unemployment and declining standards of living. Keynes summarizes his argument:

When devil P. of Population is chained up, we are free of one menace; but we are more exposed to the devil U. of Unemployed Resources than we were before. (523)

Keynes rests this argument on what we might anachronistically* call a “behavioural economics” model – the inability of business to accurately predict the reduced demand arising from a declining population. This inability connects to the larger tendency of predictions of the future to look too much like the present. Keynes abstracts from this a critique of marginal utility and rational maximizer-style models of human behavior that became dominant in the 19th century:

…in the nineteenth century… they accepted an extraordinary contraption of the Benthamite School, by which all possible consequences of alternative courses of action were supposed to have attached to them, first a number expressing their comparative advantage, and secondly another number expressing the probability of their following from the course of action in question; so that multiplying together the numbers attached to all the possible consequences of a given action and adding the results, we could discover what to do. In this way a mythical system of probable knowledge was employed to reduce the future to the same calculable status as the present. No one has ever acted on this theory. But even today I believe that our thought is sometimes influenced by some such pseudo-rationalistic notions. (518)

I wonder, much more anachronistically and provocatively, if Keynes is advancing a bit of a performativity thesis: rational actor models have never been accurate descriptions of human behavior, but they were (and are) influential in producing agents that try very hard to calculate the future in terms of the model (and just the assumption that the future will resemble the present), for better or for worse.

* Though not too anachronistically, as the contemporary behavioral economics movement is in part inspired by Keynes, e.g. the borrowing of Keynes’ phrase “Animal Spirits” for the title of Akerlof and Shiller’s book on behavioral economics.