The Horror of the Confidence Fairy (part iv)

(From Part iii)

"Who is John Galt?" (Ayn Rand, "Atlas Shrugged")

"This is the best chapter in the book and one of the most important economics essays of all time." (Tyler Cowen, "Keynes’s *General Theory*, chapter 12" or here)

"Bukharin was right when he stressed that the [subjectivist] marginalist school adopts the point of view of the rentier". (Ernest Mandel, "The Marginal Theory of Value and Neo-Classical Political Economy")

Whether you call her Confidence Fairy, Regime Uncertainty, or Animal Spirits, her father, Keynes, introduced her to the history of economic thought in Chapter 12 of his masterpiece ("animal spirits - of a spontaneous urge to action rather than inaction") and explained her significance one paragraph later:

"This means, unfortunately, not only that slumps and depressions are exaggerated in degree, but that economic prosperity is excessively dependent on a political and social atmosphere which is congenial to the average business man. If the fear of a Labour Government or a New Deal depresses enterprise, this need not be the result either of a reasonable calculation or of a plot with political intent; it is the mere consequence of upsetting the delicate balance of spontaneous optimism. In estimating the prospects of investment, we must have regard, therefore, to the nerves and hysteria and even the digestions and reactions to the weather of those upon whose spontaneous activity it largely depends."

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It doesn't take a literary critic to perceive in Keynes' ode to the subjectivity of the all-important, powerful and benevolent, if fickle, "average business man" a self-satisfied worldview which had barely changed in twelve years, since the publication of "A Short View of Russia" in 1925. Keynes (like Ayn Rand and Ludwig von Mises) sees the capitalist as the economic demiurge, whose broad shoulders sustain the world he alone created:

"How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeois and the intelligentsia who, with whatever faults, are the quality in life and surely carry the seeds of all human advancement?"

Nor does it take a psychologist to suspect Chapter 12 to be highly introspective, self-descriptive, almost confessional, with its constant appeals to personal experience ("We know from extensive experience … Nor can we rationalise our behaviour …") and even his own personal petty phobias (he explained in 1926 his "fear of a Labour Government": "It is a class party, and the class is not my class", that made of the Labour Party the "Party of Catastrophe" in "Am I a Liberal?").

In both passages Keynes, the financial speculator -- or rentier, if you prefer -- more than addressing academics, is addressing his fellow Olympians, the financial capitalists and the bourgeois, in general -- whom Rand illustrated with John Galt, the demi-god who, reacting to their impositions, could destroy the world of the moochers by his mere absence.

There is a strong family resemblance between Confy and her dad. Perhaps Rand should have given Keynes a second thought.

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The spontaneously generous encomium this chapter receives from leading libertarian economist Tyler Cowen may surprise at first, but is not gratuitous:

"This is the best chapter in the book and one of the most important economics essays of all time.  …
"Upon rereading it, I am overwhelmed by its insight and also its relevance to our current [i.e. April 30, 2009] predicament." (here or here)

(To be continued)