The State’s Animal Spirits

What is perhaps the most surprising in the recent crisis is not the pretensions of the authorities, nor the intricacies of the business cycle, nor the evolution of the mixed economy, nor the myth of deregulation, nor the government jungle in the housing and mortgage markets, nor the mistaken monetary policy; it is why so many analysts ignore the animal spirits of the state. Economists George Akerlof and Robert Shiller are representative of this astonishing neglect when, following Keynes, they blame the market’s animal spirits and call on the state to control them. By “animal spirits,” Keynes meant “a spontaneous urge to action rather than inaction.” He claimed that “individual initiative will only be adequate when reasonable calculation is supplemented and supported by animal spirits.” The business cycle depends on the “whim or sentiment or chance,” on “the nerves and hysteria and even the digestions and reactions to the weather of those upon whose spontaneous activity [investment] largely depends.”2 We are at the mercy of the businessmen’s animal spirits. But why wouldn’t the state be affected by similar animal spirits?