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Animal Spirits
Definition
Animal spirits is a term used by John Maynard Keynes in his 1936 book The General Theory of Employment Interest and Money to describe the instincts, feelings, and gut reactions that influence economic behavior.
Origins
The term "animal spirits" comes from the Latin spiritus animalis, meaning "the breath that awakens the human mind." It was coined by the British philosopher and physician Galen in the 2nd century AD.
Keynes adopted the term to describe the irrational and unpredictable forces that can drive economic decision-making. He believed that these forces could play a significant role in determining the level of economic activity.
Keynes's Theory of Animal Spirits
Keynes argued that animal spirits are a major factor in explaining the volatility of business cycles. During periods of high animal spirits, businesses are more optimistic and willing to invest, leading to economic growth. Conversely, during periods of low animal spirits, businesses are more pessimistic and cautious, leading to economic contraction.
Keynes believed that animal spirits are influenced by a variety of factors, including the news, the weather, and even the appearance of sunspots. He argued that these factors can create a "climate of opinion" that can have a profound impact on economic behavior.
Conclusion
Animal spirits are a powerful force in the economy. They can drive economic growth and prosperity, or they can lead to economic contraction and recession. Understanding the role of animal spirits is essential for policymakers who seek to manage the economy.
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