The only radical cure for the crises of confidence which afflict
the economic life of the modern world would be to allow the
individual no choice between consuming his income and ordering the
production of the specific capital-asset which, even though it be
on precarious evidence, impresses him as the most promising
investment available to him. It might be that, at times when he was
more than usually assailed by doubts concerning the future, he
would turn in his perplexity towards more consumption and less new
investment. But that would avoid the disastrous, cumulative and
far-reaching repercussions of its being open to him, when thus
assailed by doubts, to spend his income neither on the one nor on
the other.
Those who have emphasised the social dangers of the hoarding of
money have, of course, had something similar to the above in mind.
But they have overlooked the possibility that the phenomenon can
occur without any change, or at least any commensurate change, in
the hoarding of money.
Even apart from the instability due to speculation, there is the
instability due to the characteristic of human nature that a large
proportion of our positive activities depend on spontaneous
optimism rather than on a mathematical expectation, whether moral
or hedonistic or economic. Most, probably, of our decisions to do
something positive, the full consequences of which will be drawn
out over many days to come, can only be taken as a result of animal
spirits of a spontaneous urge to action rather than inaction,
and not as the outcome of a weighted average of quantitative
benefits multiplied by quantitative probabilities. Enterprise only
pretends to itself to be mainly actuated by the statements in its
own prospectus, however candid and sincere. Only a little more than
an expedition to the South Pole, is it based on an exact
calculation of benefits to come. Thus if the animal spirits are
dimmed and the spontaneous optimism falters, leaving us to depend
on nothing but a mathematical expectation, enterprise will fade and
die - though fears of loss may have a basis no more reasonable
than hopes of profit had before.
It is safe to say that enterprise which depends on hopes
stretching into the future benefits the community as a whole. But
individual initiative will only be adequate when reasonable
calculation is supplemented and supported by animal spirits, so
that the thought of ultimate loss which often overtakes pioneers,
as experience undoubtedly tells us and them, is put aside as a
healthy man puts aside the expectation of death.
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.