Nobody ever dies saying "I wish I'd spent more time at the office", or so the saying goes. We deeply regret those times the business trip or polishing off the report for the boss has meant missing the school play or cancelling the anniversary dinner.

But if we would rather be spending more time with our loved ones than in making money, why don't we do so? If we believe that our priorities are all wrong, why don't we change them? That's certainly what John Maynard Keynes thought would happen. Back in 1930, Keynes predicted that the working week would be drastically cut, to perhaps 15 hours a week, with people choosing to have far more leisure as their material needs were satisfied. The world was then gripped by a dreadful slump but in the long run Keynes was sure mankind was solving its economic problems. Within a hundred years, Keynes predicted, living standards in "progressive countries" would be between four and eight times higher and this would leave people far more time to enjoy the good things in life.

Keynes had been working on Economic Possibilities for our Grandchildren before the Wall Street Crash of 1929 but finally published it a year into the crisis. Given that the world was part of the way through a downturn unparalleled before or since, it was a brave call to say it was "only a temporary period of adjustment", but as it turned out absolutely correct. Living standards in developed western economies have seen rapid growth; by 2030 it is likely that they will have risen at least eightfold.

But Keynes also got it spectacularly wrong. Rising living standards have not led to people deciding that they can satisfy their material desires through a much truncated working week. The number of hours worked in the United States has remained pretty much steady for decades, and is 30% higher than in Europe. Europeans tend to use up all their holiday entitlement; Americans, even though their vacations are shorter, do not. The decision by Nicolas Sarkozy to scrap France's 35-hour week suggests that the American model is gaining the upper hand. Workers in the west are told to work longer and harder to meet the brutal competitive challenge from the east. If Keynes was right about a life of leisure, more of us would be working four-day weeks. As it is, the trend is in the opposite direction.

Nor has the increase in prosperity been evident everywhere in the world. Last week, the World Bank released figures showing that it had under-estimated the number of people living in extreme poverty; using a new benchmark of $1.25 a day, the Bank said that the number living below the breadline was 1.4 billion - almost a quarter of the world's population - rather than the previous figure of 985 million. While the spectacular growth of China has led to a drop in extreme poverty in east Asia from 80% to 18% since 1981, the poverty rate in sub-Saharan Africa has remained unchanged at 50%.

New era of leisure

A new book* of essays by some of the world's leading economists explores the reasons Keynes was mistaken about a new era of leisure.

One possible explanation is that many of us actually enjoy work, despite what we say to pollsters and to each other. To be sure, work can be boring, repetitive or exhausting, but it is also an arena where people get pleasure out of their achievements and enjoy mixing with other people.

Gary Becker says Keynes based his predictions on the behaviour of the rich gentry of Britain, who tended to hold their wealth in the form of land, property or financial assets. When the value of these assets rose, they could earn the same income by working less hard. Wealth creation in the modern world, by contrast, has more to do with the use of human capital, and there is a price - lower earnings - when that human capital is left idle. Becker says that rich individuals in the Gulf states, who live off revenues from oil, are the only group that conforms to Keynes's ideal of a 15-hour working week. Imported labourers, who do not share in the oil wealth, work much longer hours. For the most part, though, it is a case of the workaholic rich rather than the idle rich.

Robert Frank's explanation is that Keynes failed to spot the importance of context. We consume more because technical progress has vastly improved the quality of goods on offer, and as we get richer we want the luxury car with the satnav or the meal cooked by Gordon Ramsay. Contrary to belief, Frank says, those on middle and low incomes are not influenced greatly by what the super-rich get up to. Instead, they tend to measure themselves against people in their own peer group. So, chief executives measure themselves against chief executives, doctors measure themselves against doctors, journalists against journalists and so on.

The trend in recent years, though, has been towards more income inequality, between and within groups. The gap between the top 1% of earners and the rest has widened, but so has the gap between the top 0.1% and the rest of those in the highest bracket. Similarly, the gap has widened between the top-paid doctors and their fellows, and among all other sub-groups of society. Rich doctors spend more as they get richer, which leads to all other doctors wanting to spend more as well. Not all of them can afford to maintain the spending habits of their better-off peers, and as a result they borrow. The result, contrary to what Keynes may have imagined, has been a collapse in savings ratios in the US and Britain. Debt levels and bankruptcies have soared.

It's not entirely clear how this will change, since there is no guarantee that people actually want things to change. A greater degree of income equality would help, for two reasons.

Firstly, there is evidence that those on low pay have no choice but to work long hours. In his essay, Richard Freeman notes that more Americans than Europeans say that they want to increase hours worked than to decrease at given wage rates, and that's probably a function of a lower minimum wage and stagnant real incomes for all but the highest earners.

The second reason is that the widening earnings gap creates an incentive to put in longer hours, since the rewards for doing so are considerable.

Keynes's big failure was to recognise that distribution matters. The economic problem will not be solved while a quarter of the world lives in abject poverty, nor while a good slice of those living in developed countries are not sharing in economic prosperity or feel they need to spend longer and longer on the treadmill just to make ends meet.

· Revisiting Keynes; edited by Lorenzo Pecchi and Gustavo Piga; MIT Press; £19.95.

larry.elliott@theguardian.com