Re: Post Keynesian Axioms versus Real Economies

[Ted Winslow <winslow@xxxxxxxx>]

Title: Re: Post Keynesian Axioms versus Real Economies

Gunnar wrote:


> 
> Algebra and analytic geometry exemplify "closed logical systems".
> 
> A would-be mathematical scholar would never get to first base without
> mastering the essentials of whatever "closed logical system" pertains to his
> field of interest.
> 
> By 1911, when he published 'Theory of Economic Development', Schumpeter had
> come to the like conclusion with respect to the sine qua non of would-be
> economic scholars.
> 
> Ditto for Keynes in his 1922 definition of "the theory of economics" as
> "apparatus of the mind" and, earlier, for Marshall who defined theoretical
> economics as "an engine of analysis".
> 


In my judgement, this interpretive claim re Keynes and Marshall is mistaken.

In describing economics as a "an apparatus of the mind", "a way of thinking", Keynes was concerned to disconnect it from the emphasis on long chains of deductive reasoning from precisely defined fixed and unchanging axioms characteristic of many forms of mathematical reasoning.  In particular he was concerned to disconnect it from the forms dominant in physics.  This was ultimately a question of the ontological premises appropriate in "psychics".  These, according to Keynes, sharply contrast with those dominant in physics.  In particular, the "atomic hypothesis" which dominates the latter is inappropriate in the former.

"The atomic hypothesis which has worked so splendidly in physics breaks down in psychics.  We are faced at every turn with the problems of organic unity, of discreteness, of discontinuity - the whole is not equal to the sum of the parts, comparisons of quantity fail us, small changes produce large effects, the assumptions of a uniform and homogeneous continuum are not satisfied."  (X, p. 262)

In his biographical essay on Marshall, Keynes points out (see particularly X, pp. 185-7 and 196-7) that Marshall was aware of this ontologically based difference "between the objects and methods of the mathematical sciences and those of the social sciences" (p. 197).  It was the source, he claims, of "the profundity of his [Marshall's] insight into the true character of his subject in its highest and most useful developments" (X, p. 188) and explained Marshall's view of the role of mathematics in economics.  In making this interpretive point re Marshall, Keynes explicitly contrasts, in the way I've just outlined, Marshall's approach with the approach characteristic of physics.

"Professor Planck, of Berlin, the famous originator of the Quantum Theory, once remarked to me that in early life he had thought of studying economics, but had found it too difficult!  Professor Planck could easily master the whole corpus of mathematical economics in a few days.  He did not mean that!  But the amalgam of logic and intuition and the wide knowledge of the facts, most of which are not precise, which is required for economic interpretation in its highest form is, quite truly, overwhelmingly difficult for those whose gift mainly consists in the power to imagine and pursue to their furfthest points the implications and prior conditions of comparatively simple facts which are known with a high degree of precision." (p. 186)

The distinguishing ontological feature of the social sciences is the fact of "organic unity", i.e. the fact that, as Marshall himself puts it,  "man himself is in a great measure a creature of circumstances and changes with them" which in economics has the result that "the actual facts of industry and trade ... and the relation of individual men to them, are constantly and rapidly changing".  (p. 196)

It is for this reason that deductive reasoning, particularly certain abstract forms of mathematical reasoning, has a very different and much more limited role in the social sciences from the one it has in the physical sciences.

This point is reiterated frequently in Keynes's writings.  For instance, in contrasting Ricardo's approach to economic analysis with Malthus's, he says that Malthus, in his 1800 pamphlet An Investigation of the Cause of the Present High Price of Provisions,

"was already disposed to a certain line of approach in handling practical economic problems which he was to develop later on in his correspondence with Ricardo, - a method which to me is most sympathetic, and, as I think, more likely to lead to right conclusions than the alternative approach of Ricardo.  But it was Ricardo's more fascinating intellectual construction which was victorious, and Ricardo who, by turning his back so completely on Malthus's ideas, constrained the subject for a full hundred years in an artificial groove.
    "According to Malthus's good common-sense notion prices and profits are primarily determined by something which he described, though none too clearly, as 'effective demand'.  Ricardo favoured a much more rigid approach, went behind 'effective demand' to the underlying conditions of money on the one hand and real costs and the real division of the product on the other hand, conceived these fundamental factors as automatically working themselves out in a unique and unequivocal way, and looked on Malthus's method as very superficial.  But Ricardo, in the course of simplifying the many successive stages of his highly abstract argument, departed, necessarily and more than he himself was aware, away from the actual facts; whereas Malthus, by taking up the tale much nearer its conclusion, had a firmer hold on what may be expected to happen in the real world.  Ricardo is the father of such things as the quantity theory of money and the purchasing power parity of the exchanges.  When one has painfully escaped from the intellectual domination of these pseudo-arithmetical doctrines, one is able, perhaps for the first time for a hundred years, to comprehend the real significance of the vaguer intuitions of Malthus."  (X, pp. 87-8)

In his discussions of Tinbergen's early work in econometrics the point is reiterated as the central reason such methods are largely inapplicable in economics.  Here the idea of economics as "a branch of logic, a way of thinking" is explicitly contrasted with the idea of economics as "a pseudo-natural-science" dominated methodologically by long chains of deductive reasoning from fixed unchanging precisely defined axioms.

"It seems to me that economics is a branch of logic, a way of thinking; and that you [Harrod] do not repel sufficiently firmly attempts a la Schultz to turn it into a pseudo-natural-science.  One can make some quite worth while progress merely by using your axioms and maxims.  But one cannot get very far except by devising new and improved models.  This requires, as you say, 'a vigilant observation of the actual working of our system'.  Progress in economics consists almost entirely in a progressive improvement in the choice of models.  ...
    "Economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world.  It is compelled to be this, because, unlike the typical natural science, the material to which it is applied is, in too many respects, not homogeneous through time.  The object of a model is to segregate the semi-permanent or relatively constant factors from those which are transitory or fluctuating so as to develop a logical way of thinking about the latter, and of understanding the time sequences to which they give rise in particular cases.
    "Good economists are scarce because the gift for using 'vigilant observation' to choose good models, although it does not require a highly specialised technique, appears to be a rare one."  (XIV, pp. 296-7)

The point also underpins Keynes's critical remarks on conventional mathematical methods in the General Theory.

"It is a great fault of symbolic pseudo-mathematical methods of formalising a system of economic analysis ... that they expressly assume strict independence between the factors involved and lose all their cogency and authority if this hypothesis is disallowed; whereas, in ordinary discourse, where we are not blindly manipulating but know all the time what we are doing and what the words mean, we can keep 'at the back of our heads' the necessary reserves and qualifications and the adjustments which we shall have to make later on, in a way in which we cannot keep complicated partial differentials 'at the back' of several pages of algebra which assume that they all vanish.  Too large a proportion of recent 'mathematical' economics are merely concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols."  (VII, pp. 297-8)

By the way, Marshall, in setting out the ontological basis of his conception of economics as an "engine for the discovery of concrete truth", acknowledges the "socialists" as his precursors on this question (see the passage from Marshall quoted by Keynes in X, p. 196).  He doesn't mention, though I'm pretty sure he knew, that the "socialist" with the most profound understanding of the appropriate ontology was Marx.  Marshall's idea of "organic interdependence" is fundamentally similar to Marx's idea of "dialectical interdependence".  The common foundational concept is "internal relations".

Best,

Ted
--
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