“Animal Spirits” explained

One week ago, I promised a full explanation of what economists mean by the term “animal spirits”. I am now fulfilling that promise by posting relevant passages from the delightful book written by economists George Akerlof and Robert Shiller.

John Maynard Keynes [in  The General Theory (1936)] sought to explain departures from full employment, and he emphasized the importance of animal spirits. He stressed their fundamental role in businessmen’s calculations. “Our basis of knowledge for estimating the yield ten years hence of a  railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing,” he wrote. If people are so uncertain, how are decisions made? They “can only be taken as a result of animal spirits.” They are the result of “a spontaneous urge to action.” They are not as rational economic theory would dictate, “the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.”

In the original use of the term, in its ancient and medieval Latin form spiritus animalis, the word animal means “of the mind” or “animating.” It refers to a basic mental energy and life force. But in modern economics animal spirits has acquired a somewhat different meaning; it is now an economic term, referring to a restless and inconsistent element in the economy. It refers to our peculiar relationship with ambiguity and uncertainty. Sometimes we are paralyzed by it. Yet at other times it refreshes and energizes us, overcoming our fears and indecisions.

[….]

The term animal spirits originated in ancient times, and the works of the ancient physician Galen (ca. 130-ca. 200) have been widely quoted ever since as a source for it. The term was commonly used in medicine through medieval times and up until Robert Burton’s The Anatomy of Melancholy (1632) and Rene Descartes’ Traité de l’Homme (1664). There were said to be three spirits: the spiritus vitalis that originated in the heart, the spiritus naturalis that originated in the liver, and the spiritus animalis that originated in the brain. The philosopher George Santayana (1923) built a system of philosophy around the  centrality of “animal faith,” which he defined as “a pure and absolute spirit, an imperceptible cognitive energy, whose essence is intuition.”

George Akerlof and Robert Shiller, Animal Spirits: How human psychology drives the economy and why it matters for global capitalism (Princeton University Press, 2009), pp. 3-4, 177-178.

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