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Animal Spirits and Rationality

In: Foundations for New Economic Thinking

Author

Listed:
  • Sheila C. Dow

    (University of Stirling)

  • Alexander Dow

Abstract

The notion that ‘animal spirits’ govern investment decisions can be viewed as being central to Keynes’s theory of aggregate demand and, at the same time, as being its weakest point. An autonomous shift in long-run expectations among entrepreneurs can drive a wedge between effective demand and full employment output, requiring government stabilisation policy if full employment is to be achieved. That shifts in long-run expectations may occur autonomously is, however, regarded by many as cause for concern. If Keynes’s theory can neither explain nor predict these shifts, then it appears to be lacking a crucial element.

Suggested Citation

  • Sheila C. Dow & Alexander Dow, 2012. "Animal Spirits and Rationality," Palgrave Macmillan Books, in: Foundations for New Economic Thinking, chapter 3, pages 33-51, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-00072-9_3
    DOI: 10.1057/9781137000729_3
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    Cited by:

    1. Mazzucato, Mariana & Semieniuk, Gregor, 2018. "Financing renewable energy: Who is financing what and why it matters," Technological Forecasting and Social Change, Elsevier, vol. 127(C), pages 8-22.
    2. Ronald Schettkat, 2018. "Animal Spirits - Die Verhaltensökonomischen Grundlagen der Keynesschen Theorie," Schumpeter Discussion Papers sdp18008, Universitätsbibliothek Wuppertal, University Library.
    3. Ronald Schettkat, 2018. "The Behavioral Economics of John Maynard Keynes," Schumpeter Discussion Papers sdp18007, Universitätsbibliothek Wuppertal, University Library.

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