Keynes

The influence of psychology on Keynes’s ‘mature’ economic theory has been considered elsewhere by the author in an examination of the works of Stout and James Sully, which Keynes studied for the psychology component of the civil service entrance examination in 1905-1906 (see Barnett 2013: 274, 2015: 308). He read Stout’s Analytic Psychology as a representative text: Cambridge psychology had a wider resonance within Cambridge University. Both Stout and Sully considered the concepts of expectation (as active motivator) and propensity (in relation to habit), and in first encountering these concepts in 1905, the young Keynes absorbed their psychological connotations before choosing academic economics as his career path.

However, the link between Keynes and Cambridge psychology goes much further than Stout. For example, Keynes knew of Ward’s work, as is evidenced by the references to him in Keynes’s biographical essays. In his portrait of Marshall, Keynes explained:

Like his two colleagues, Henry Sidgwick and James Ward... Alfred Marshall belonged to the tribe of sages and pastors; yet, like them also, endowed with a double nature, he was a scientist too ... [I]t was to the first side of his nature that he himself preferred to give the pre-eminence. This self should be master, he thought; the second self, servant (Keynes 1924: 321).

This paragraph contains multilevel allusions to psychology. First, Keynes was connecting a Cambridge psychologist (Ward) with two Cambridge economists (Sidgwick and Marshall) and stating that they had character features in common. The second more subtle reference was to character splitting or the dual nature of the human personality, which (according to Keynes) all three individuals had exhibited. Morton Prince published a book called Dissociation of a Personality in 1906, which was an original study of what was then called multiple personality.

The third layer related to what Keynes had been discussing prior to the quotation above, namely Marshall’s early interest in ‘the more progressive study of Psychology’, and its ‘fascinating inquiries into the possibilities of the higher.development of human faculties’ (ibid.: 171). Keynes recognised that for Cambridge economists like Marshall, economics and psychology were intimately connected, but he went further, proposing that the period after 1874-1875, with Foxwell examining the Cambridge Tripos, should be referred to as ‘the years of James Ward and J.N. Keynes’ (Keynes 1936: 590). In linking his father to Ward, Keynes was acknowledging the influence that Ward had wielded at Cambridge as an institution and that ‘mental philosophy’ was a wide-ranging discipline.

It is more conventional to make connections between Keynes’s Bloomsbury influences and the work of Sigmund Freud (Dostaler 2007), but the broader interest in psychoanalysis at Cambridge has been less recognised by historians of economics. W.H.R. Rivers, appointed Lecturer in the Physiology of the Special Senses at Cambridge in 1893, drew on Freud’s concept of repression in his own work (Forrester 2004: 3-4). Although the psychoanalytic approach was demarcated from psychology even in the 1910s, there was an important degree of overlap between the two subjects. The fact that this intersection had a branch located in Cambridge was significant, even if, in the case of Keynes, this link was mediated via Bloomsbury.

The most well-known reference in Keynes’s writings to Freud is to the ‘Freudian theory of the love of money’ in A Treatise on Money as to why gold satisfied subconscious instincts and served as a symbol of the standard of purchasing power (Keynes 1930 [1971]: 258). Freud had written: ‘[G]old itself stinks. I think that the association is that “miserliness” is “dirty”’ (Freud 1954a: 240) and confirmed the ‘connection between gold and faeces’ (Freud 1954b: 403). Keynes described gold as being seen as a ‘furtive Freudian cloak’.

The Freudian analogy only makes sense from one perspective; however, as if gold is a symbol of faeces, then this is the opposite of a stable standard of value. But it is appropriate for those opposed to maintaining a gold standard, as it symbolised the ‘miserly’ nature of metallic reserves and that the return to a bygone currency system was equivalent to returning to an earlier ‘anal’ stage of psychological development (Forrester 2004: 19). In A Treatise on Money Keynes seemed unsure whether gold was really a ‘Freudian cloak’, as he judged: ‘[W]e need not be curious to enquire’ (Keynes 1930 [1971]: 259).

He was more forthcoming in a letter to The Nation and Athenaeum: the case for considering Freudian theories seriously depended on ‘the appeal which they make to our own intuitions as containing something new and true about the way in which human psychology works’ (Keynes quoted in King 2010: 12). For Keynes, what was original in Freud was not the specific psychoanalytic ideas themselves, but how the psychoanalytic method provided insights into the mechanisms by which psychological factors generated behaviour, for example, through the role of the subconscious. Freud’s tripartite division of the mind into ego, superego, and id provided a structure by which ‘hidden’ factors could influence the conscious mind, and this mechanism was an important part of Keynes’s employment of psychology in his economic analysis (Barnett 2013: 230-233, 2015, 325-329).

Although the concept of ‘psychological poverty’ appeared in A Treatise on Money (Keynes 1930 [1971]: 176), the most well-known use of psychology in Keynes’s economics was the ‘fundamental psychological law’ in The General Theory that individuals increased their consumption as their income increased, but not by as much as the income increase (Keynes 1936 [1973]: 96). It has been suggested that he obtained this ‘law’ from the income/expenditure analysis of Jens Warming (Laidler 1999: 251). Keynes outlined that it came from two sources: a priori knowledge of human nature and the facts of experience, the latter being more plausibly attributed to Warming’s analysis.

The ‘human nature’ in question was evidently psychological in origin, since whether to consume or to save income beyond a subsistence level was a choice undertaken through mental decision-making processes. Two other fundamental psychological factors—the liquidity attitude and expected capital asset yield—made up the first of The General Theory’s three ultimate independent variables that determined the level of employment. In using the concept of expectation directly in association with psychology, this brought Keynes full circle, back to Stout’s account of expectation as he had first encountered it whilst studying for the psychology part of the civil service examination (Barnett 2013: 274, 2015: 313-314).