Re: Keynes on rational expectations

[Ted Winslow <winslow@xxxxxxxx>]

Michael asks:

>Didn's Skidelsky show that Keynes eventually got badly burnt trying some
>of the techniques that Ted cited?
>--

In the late 1920s Keynes switched from what, in the passages I cited, he
calls a "credit cycle" investment policy to the "intrinsic value" policy.
The debacle of 1920 to which Paul pointed predates this switch.

In a 1938 memorandum for the King's College Estates Committee he carried
out a post mortem on the results of this policy over the previous nine
years. (CW XII, pp. 102-9).  He claims that overall the results confirm the
policy.  He also explains why it is inappropriate to evaluate it on any
basis other than cumulative results. He gives reasons (pp. 105-6) why the
losses of 1937/38 were largely unavoidable by a rational speculator. He
also claims to show (pp. 107-8) that in spite of these losses the
cumulative results of an "intrinsic value" policy were very much better
than those that would have been achieved by a "credit cycle" policy carried
out by a "genius" over the same period (the "intrinsic value" policy
produced an appreciation for the King's College Chest of 162 per cent over
the period; in comparison, the credit cycle genius would have earned an
appreciation of 82 per cent) and very very much better than market indexes.

I don't recall Skidelsky calling Keynes's own evaluation of this policy
into question.

Ted


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