he economist John Maynard Keynes (1883-1946) famously said, “in the long run we are all dead.” He wasn’t saying we should ignore the long run—only that we shouldn’t ignore the short run. Economists of the time, Keynes argued, believed that economies had self-correcting tendencies that, if left unhampered by government, would remedy periods of low employment, output, and growth in the long run. However, Keynes wrote:

…this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again.

Keynes went on to develop the idea that economies did not, in fact, have these self-correcting tendencies at all. In an essay titled “The Great Slump of 1930,” he suggested that policymakers had “blundered in the control of a delicate machine” and that, while the situation was serious, depressed economies were simply suffering from “magneto trouble.” Once the magneto was humming again, prosperity would return. But it would not start humming of its own accord. How to get it going again was the subject of his great work, The General Theory of Employment, Interest and Money, published in 1936.

With this work on the causes and remedies for slumps in aggregate economic variables like employment and output, Keynes is often called the father of macroeconomics. Broadly, this deals with short-run fluctuations. What drives economic growth—or otherwise—over the longer span is covered by growth theory. Textbooks will frequently draw a line between short-run and long-run macro just as they do between macro and microeconomics.

Keynes in the Long Run

What did Keynes have to say about the long run? His views on short-run macro fluctuations are well known, his views on long-run economic growth less so. While he never systematically set out his growth theory, insights can be found in Keynes’ other works.

In 1919, Keynes was a high-ranking advisor in the British delegation to the Versailles conference, tasked with drafting a peace treaty with Germany. In June, protesting what he deemed the treaty’s too-harsh terms, he resigned. In July and August, he wrote The Economic Consequences of the Peace. It became a bestseller and established him as a public intellectual. The book is famous for its denunciation of the treaty terms, but it also sheds light on Keynes’ thoughts on growth.

Keynes argued that the growth in economic output over time, seen pre-war, was driven by the growth in capital. What accounted for this capital growth? Keynes wrote:

While there was some continuous improvement in the daily conditions of life of the mass of the population, Society was so framed as to throw a great part of the increased income into the control of the class least likely to consume it. The new rich of the nineteenth century were not brought up to large expenditures, and preferred the power which investment gave them to the pleasures of immediate consumption.

It is interesting to note that Keynes, here, views income inequality as a driver of the capital accumulation, which in turn drives economic growth.

In fact, it was precisely the inequality of the distribution of wealth which made possible those vast accumulations of fixed wealth and of capital improvements which distinguished that age from all others. … The immense accumulations of fixed capital which, to the great benefit of mankind, were built up during the half century before the war, could never have come about in a Society where wealth was divided equitably. The railways of the world, which that age built as a monument to posterity, were, not less than the Pyramids of Egypt, the work of labor which was not free to consume in immediate enjoyment the full equivalent of its efforts.

What is also interesting is that Keynes thought that efforts to fight this inequality, such as with high income or wealth taxes, would endanger capital accumulation and economic growth.

The cake was really very small in proportion to the appetites of consumption, and no one, if it were shared all round, would be much the better off by the cutting of it.

The Long Run versus the Short Run

Keynes never deviated from his belief that long-run growth was driven in large part by capital accumulation. In 1930, he wrote an essay titled “Economic Possibilities for our Grandchildren.” He observed that since the Industrial Revolution, “the average standard of life in Europe and the United States has been raised, I think, about fourfold” and predicted that “the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is today.”

Consistent with his argument in The Economic Consequences of the Peace, he attributed this, in large part, to “the accumulation of capital which began in the sixteenth century.”

But as Keynes’ macroeconomic ideas developed, he lost sight of where this capital originated. In The General Theory, he speculates on the future possibility of “a society which finds itself so well equipped with capital that its marginal efficiency is zero and would be negative with any additional investment,” blithely asserting that it would be “comparatively easy to make capital-goods so abundant that the marginal efficiency of capital is zero.”

At the core of Keynes’s macroeconomics was the idea that too little money could be spent to maintain full employment—that magneto trouble. If people saved their money rather than spending it, then total spending—aggregate demand—would fall. In an essay titled “Saving and Spending” from 1931, Keynes wrote that “The best guess I can make is that whenever you save five shillings, you put a man out of work for a day.” Thus, savings, which the Keynes of 1919 saw as essential for long-run economic growth, the Keynes of 1931 saw as a threat to short-run macroeconomic stability.

Disunified Theory

Keynes might not actually have said, “When events change, I change my mind,” but the flexibility of his beliefs was legendary. Winston Churchill is supposed to have remarked that if

you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions.

When The General Theory appeared, Keynes’s friend and sparring partner, Friedrich von Hayek, refrained from producing a thoroughgoing critique because he assumed Keynes would change his mind. His views on the economic desirability of saving appear to have undergone a similar shift as the focus of his work changed. Keynes is famous for initiating the split between micro and macroeconomics. He should also be remembered for splitting long-run growth theory from short-run macro theory.