Animal Spirits
What Is Animal Spirits?
Animal spirits is the term John Maynard Keynes used, in The General Theory of Employment, Interest and Money (1936), for the spontaneous optimism that drives business investment beyond what cold calculation can justify. Keynes argued that many decisions to invest depend on a spontaneous urge to action rather than on a precise weighing of probable outcomes, because the future is too uncertain to calculate fully. When confidence is high, animal spirits spur investment and hiring; when it collapses, spending can dry up even if the underlying arithmetic has not changed. The phrase captures the role of psychology, mood, and confidence in driving the ups and downs of the economy.
Why It Matters
Animal spirits matters because it puts sentiment and confidence at the center of explaining booms and slumps, a theme that runs through Keynesian economics. If investment swings with waves of optimism and pessimism, then economies can fall into downturns that are not self-correcting, strengthening the case for policy to support demand. The idea helps explain why recoveries can stall even when interest rates are low, connecting to Keynes's account of the liquidity trap, and why expectations and confidence are watched so closely by policymakers and markets. Later economists revived the phrase to describe how psychology and shifting confidence contribute to financial booms, panics, and the business cycle.