[PEN-L:3867] Re: animal spirits, risk and uncertainty

[dhenwood@xxxxxxxxx (Doug Henwood)]

At 12:01 PM 4/19/96, ROSSERJB@xxxxxxx wrote:

>     I think Doug H. is partly right about what Keynes was driving at,
>certainly a revolutionary overthrow of capitalism would be a source of
>fundamental uncertainty.  But I think that he overdoes this.  Thus,
>there is no discoverable or knowable probability distribution on what
>the Dow-Jones Average will be ten years from now.  It is fundamentally
>uncertain and for a lot of reasons.

Of course we don't know what the DJIA will be in ten years; we don't even
know what it will be on Monday. But how much does this matter for people
outside the markets?

The passage from the 1937 QJE article is worth quoting at length:

"By 'uncertain' knowledge, let me explain, I do not mean merely to
distinguish what is known for certain from what is only probable. The game
of roulette is not subject, in this sense, to uncertainty; nor is the
prospect of a victory bond being drawn.... Even the weather is only
moderately uncertain. The sense in which I am using the term is that in
which the prospect of a European war is uncertain, or the price of copper
and the rate of interest twenty years hence, or the obsolescence of a new
invention, or the position of private wealth-owners in the social system in
1970. About these matters there is no scientifica basis on which to form
any calculable probability whatever. We simply do not know."

Savor the examples. Three of the five are "economic" in the narrow sense,
but two aren't: war and revolution. How significant is this kind of
uncertainty for the day-to-day management of a business in an OECD country?

Doug

--

Doug Henwood
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