Re: Backed Money-Sproul/Tomasson re. Ricardo/Bentham

[Ted Winslow <winslow@xxxxxxxx>]

Title: Re: Backed Money-Sproul/Tomasson re. Ricardo/Bentham

Gunnar quotes Keynes:
> 
> "I found it very interesting and really have next to nothing to say by way
> of criticism. From one point of view you are perhaps scarcely fair to the
> classical view. For what you are giving is a representative belief of a
> period when economists had slipped away from the pure classical doctrine
> without knowing it and were in a much more confused state of mind than their
> predecessors had been. The story that you give is a very good account of the
> beliefs which, let us say, you and I used to hold. But if you were to go
> further back, how far back I am not sure, you would have found a school of
> thought which would have considered this an inconsistent hotch-potch." [54]
> 

> 
> "The inconsistency creeps in, I suggest, as soon as it comes to be generally
> agreed that the increase in the quantity of money is capable of increasing
> employment. A strictly brought up classical economist would not, I should
> say, admit that. We used formerly to admit it without realizing how
> inconsistent it was with our other premises." [56]

He then interprets these passages as follows:

> 
> In other words, Keynes was guilty of the much maligned Ricardian "vice," as
> it came to be called:
> 
> The intellectual aversion to indeterminate, i.e., inconsistent, propositions
> parading under the banner of economic science.
> 

The Ricardian "vice", according to Keynes, is not "the intellectual aversion to indeterminate, i.e., inconsistent, propositions parading under the banner of economic science."  It is the overemphasis on deduction (i.e. on formal logic) and the mistaken identification of formal logic with ontological atomism.  

The overemphasis on deduction produces what Emerson called a "foolish consistency".  One of the most important signs of its presence is a psychologically based immunity to reductio ad absurdum arguments.  Say a particular set of premises leads to the conclusion that there can never be involuntary unemployment.  Economists wedded to "foolish consistency" respond by denying the obvious fact of involuntary unemployment.  Say they also imply the neutrality of money.  Here the response is to deny the obvious fact that changes in the money supply are capable of changing output.

The rational response to a reductio ad absurdum is to conclude that the premises of the argument are in some way mistaken and then to change them so as eliminate the absurdity.  A second-best though less than wholly rational response (better, however, than remaining wholly immune to the reductio ad absurdum) is to change the conclusions without changing the premises.  Those who do this, of course, mistakenly remain satisfied with an ultimate inconsistency.  

(Frank Ramsey, by the way, provides a philosophical defense of inconsistency as better than "foolish consistency" in his discussion of the relation of "human logic or the logic of truth" to "formal logic" in the essay "Truth and Probability" in The Foundations of Mathematics.

"The most generally accepted parts of logic, namely, formal logic, mathematics and the calculus of probabilities, are all concerned simply to ensure that our beliefs are not self-contradictory.  ...  But this is obviously not enough; we want our beliefs to be consistent not merely with one another but also with the facts: nor is it clear that consistency is always advantageous; it may well be better to be sometimes right than never right.  This point seems to me to show particularly clearly that human logic or the logic of truth, which tells men how they should think, is not merely independent of but sometimes actually incompatible with formal logic."   p. 191)

The idea of the "foolish consistency" of the "remorseless logician" is frequently invoked by Keynes to describe the mentality of "classical theorists".

"The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight - as the only remedy for the unfortunate collisions which are occurring.  Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry.  Something similar is required to-day in economics."  (VII, p. 16)

What "Bedlamite economists" (Keynes's phrase) and many others seem to have the greatest difficulty accepting is the psychological fact of avarice, of  "the love money as a possession".  One consequence of this, according to Keynes, is a very strong irrationally rooted attachment to Say's law.

"The absurd, though almost universal, idea that an act of individual saving is just as good for effective demand as an act of individual consumption, has been fostered by the fallacy, much more specious than the conclusion derived from it, that an increased desire to hold wealth, being much the same thing as an increased desire to hold investments, provide a stimulus to their production; so that current investment is promoted by individual saving to the same extent as present consumption is diminished.
  "It is of this fallacy that it is most difficult to disabuse men's minds."  (VII, pp. 211-2)

"Contemporary thought is still deeply steeped in the notion that if people do not spend their money in one way they will spend it in another.  Post-war economists seldom, indeed, succeed in maintaining this standpoint consistently; for their thought to-day is too much permeated with the contrary tendency and with facts of experience too obviously inconsistent with their former view.  But they have not drawn sufficiently far-reaching consequences; and have not revised their fundamental theory."  (VII, p. 20)

In a footnote to the second sentence in this last passage Keynes singles out Robbins as an exception to this and, hence, as exemplifying "foolish consistency".

"It is the distinction of Prof. Robbins that he, almost alone, continues to maintain a consistent scheme of thought, his practical recommendations belonging to the same system as his theory."  (p. 20, note 2)

Keynes frequently picks out Robbins and Hayek as exemplifying "foolish consistency" in this sense.  In the case of Hayek, for instance, Keynes says of Hayek's book  Prices and Production that

"The book, as it stands, seems to me to be one of the most frightful muddles I have ever read, with scarcely a sound proposition in it beginning with page 45, and yet it remains a book of some interest which is likely to leave its mark on the mind of the reader.  It is an extraordinary example of how, starting with a mistake, a remorseless logician can end up in Bedlam."  (XII, p. 252)

Best,

Ted