What is animal spirits in economics?

John Maynard Keynes, answered from the texts and cited to the page.

John Maynard Keynes answers

The term itself is borrowed from the physicians — it named the vital fluid they supposed to animate the body — but what I mean by it is something more precise and more troubling than a metaphor. Most of our decisions to do something positive, whose consequences will be drawn out over many days to come, cannot be taken as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.¹

The reason is simple: the basis for making such calculations does not exist.² We know what capital assets exist today, and we can observe the strength of current consumer demand; but the future changes in the stock of capital, in the tastes of consumers, in the strength of effective demand over the life of an investment — these can only be forecasted with more or less confidence, and often very little of it.³

If we speak frankly, our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory is usually very slight and often negligible.⁴ So enterprise does not, in fact, rest on exact calculation. Only a little more than an expedition to the South Pole is it based on an exact reckoning of benefits to come.⁵

What actually moves men to invest is a spontaneous urge to action rather than inaction — animal spirits, in my phrase — and enterprise only pretends to itself to be mainly actuated by the statements in its own prospectus.⁶ The consequence for economic stability is severe. If the animal spirits are dimmed and spontaneous optimism falters, leaving us to depend on nothing but mathematical expectation, enterprise will fade and die; and fears of loss may have a basis no more reasonable than the hopes of profit had before.⁷

This means that slumps and depressions are exaggerated in degree, and that economic prosperity is excessively dependent on a political and social atmosphere congenial to the average business man.⁸ Upset the convention — a change of government, a shift in the social mood — and investment collapses not because any calculation has been revised but because the delicate balance of spontaneous optimism has been disturbed.⁹

None of this is to say that everything depends on waves of irrational psychology. The state of long-term expectation is often steady, and when it is not, other factors exert compensating effects.¹⁰ We are rational selves choosing between alternatives as best we are able, calculating where we can — but often falling back for our motive on whim or sentiment or chance.¹¹

Animal spirits is the name for that remainder, the part that calculation cannot reach, and any economics that pretends the remainder is zero has simply decided to study a different world from the one we inhabit.

Sources

Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits—of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.
The General Theory of Employment, Interest and Money, pp. 177–178
human decisions affecting the future, whether personal or political or economic, cannot depend on strict mathematical expectation, since the basis for making such calculations does not exist
The General Theory of Employment, Interest and Money, pp. 178–179
Amongst the latter are future changes in the type and quantity of the stock of capital-assets and in the tastes of the consumer, the strength of effective demand from time to time during the life of the investment under consideration, and the changes in the wage-unit in terms of money which may occur during its life.
The General Theory of Employment, Interest and Money, pp. 163–164
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
The General Theory of Employment, Interest and Money, pp. 164–165
Only a little more than an expedition to the South Pole, is it based on an exact calculation of benefits to come.
The General Theory of Employment, Interest and Money, pp. 178–179
Enterprise only pretends to itself to be mainly actuated by the statements in its own prospectus, however candid and sincere.
The General Theory of Employment, Interest and Money, pp. 177–178
if the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but a mathematical expectation, enterprise will fade and die;—though fears of loss may have a basis no more reasonable than hopes of profit had before.
The General Theory of Employment, Interest and Money, pp. 177–178
not only that slumps and depressions are exaggerated in degree, but that economic prosperity is excessively dependent on a political and social atmosphere which is congenial to the average business man.
The General Theory of Employment, Interest and Money, pp. 178–179
If the fear of a Labour Government or a New Deal depresses enterprise, this need not be the result either of a reasonable calculation or of a plot with political intent;—it is the mere consequence of upsetting the delicate balance of spontaneous optimism.
The General Theory of Employment, Interest and Money, pp. 178–179
We should not conclude from this that everything depends on waves of irrational psychology. On the contrary, the state of long-term expectation is often steady, and, even when it is not, the other factors exert their compensating effects.
The General Theory of Employment, Interest and Money, pp. 178–179
it is our innate urge to activity which makes the wheels go round, our rational selves choosing between the alternatives as best we are able, calculating where we can, but often falling back for our motive on whim or sentiment or chance.
The General Theory of Employment, Interest and Money, pp. 178–179