Animal Spirits

A term used to describe stock market optimism.

Reporting on a strong start to 2010 for stock markets and Asian and European manufacturers, Ian McGugan asked in The Financial Post:

Could it be that optimism is coming back into fashion? John Maynard Keynes, the British economist, coined the term “animal spirits” to describe the fragile sense of optimism that is needed to fuel economic growth.

This confidence vanished after the collapse of Bear Stearns and Lehman Brothers Holdings Inc., but following the stock market’s remarkable resurgence in recent months and an encouraging round of recent economic reports, animal spirits are back in fashion.

Keynes discussed “animal spirits” in his 1936 book, “The General Theory of Employment, Interest and Money.” Since then the term has been regularly quoted to characterize what The Economist called “one of the essential ingredients of economic prosperity: confidence.”

According to Keynes, animal spirits are a particular sort of confidence, “naive optimism.” He meant this in the sense that, for entrepreneurs in particular, “the thought of ultimate loss which often overtakes pioneers, as experience undoubtedly tells us and them, is put aside as a healthy man puts aside the expectation of death.” Where theseanimal spirits come from is something of a mystery. Certainly, attempts by politicians and others to talk up confidence by making optimistic noises about economic prospects have rarely done much good.