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

Ted:

Let me address your points in turn.

(1) Keynes no where argues against the importance of logical coherence. He argues against "foolish consistency" not against consistency per se. The Ricardian vice has to do with "foolish consistency" and with the mistaken identification of formal logic with ontological atomism. The latter mistake shows up as Whitehead's "fallacy of misplaced concreteness" (i.e. the neglect of the fact pointed to by Marshall that "man himself is in a great measure a creature of circumstances and changes with them" - Whitehead himself makes this point in criticism of classical economics in, among other places, Adventures of Ideas, chap. 6), as forms of deduction which treat interdependence as atomic rather than organic, and as "scholasticism" - "the treating of what is vague as if it were precise and could be fitted into an exact logical category." (X, p. 343) (These last two points are also in Whitehead.)

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There is no such thing as "foolish consistency" in Economic Theory as defined by Keynes in 1922, namely, as "an apparatus of the mind, a technique of thinking".

For "foolishness" to enter the picture, the economic theorist must make-believe that "an apparatus of the mind, a technique of thinking" applies directly to real-world economic phenomena rather than indirectly.

For, as Keynes explained, "The Theory of Economics [is something] "which helps its possessor to draw correct conclusions".

In an essay on unresolved issues in economic science, John Stuart Mill not only subscribed to the like view of the "method" of economic science, but ascribed it to all his predecessors of first rank.

Milton Friedman's view on related issues is as follows:

"Logical completeness and consistency are relevant but play a subsidiary role; their function is to assure that [a] hypothesis says what it is intended to say and does so alike for all users - they play the same role here as checks for arithmetical accuracy do in statistical computations."

I submit that this is gibberish - but would like to stand corrected.

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(2) The "this" in Keynes's statement to Hicks that "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" does not refer to the General Theory. It refers to attempts to make the non-neutrality of money compatible with classical axioms. Earlier classical writers would have considered the result "an inconsistent hotch-potch" because this, in fact, is what it was. The General Theory is an attempt to reconstruct the theory of a monetary economy so as to ELIMINATE this inconsistency.

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Keynes, whose understanding of what Mill called "the method a priori" and how it did not relate directly to real-world economic phenomena was reflected in his 1922 definition of The Theory of Economics, chose to make-believe in the General Theory that the classical axioms as summarized in Say's Law had been envisaged as applying directly to real-world economies.

This clever tactical move gained Keynes an immediately sympathetic hearing among his peers at the cost of setting post-war macro-economics off on a wild-goose chase.

After spending a quarter-century in the chase, James Tobin called it off sometime between 1969 and the time he picked up his Nobel for his quarter-century endeavors.

In the inaugural issue of the Journal of Money and Banking (?) in 1969, as I recall it, Tobin explained that the only thing that stood in the way of the on-going "attempt to reconstruct the theory of a monetary economy so as to ELIMINATE this inconsistency" was the still unresolved problem of reconciling an economy's "income" and "capital" accounts in a single conceptual framework.

When I suggested to Tobin that the problem was insoluble in principle, he advised that he "now" liked what he called "the stock-flow-stock" model on which he had lectured at the Nobel ceremony.

Considering that Keynes' "attempt" has yet to be successfully carried off, I submit it is high time for modern economists to face squarely up to the implications of Ricardo's "logically consistent" conclusion in his letter of October 9, 1820 to Malthus, reported by Keynes in the first footnote to Ch. 2 of the General Theory:

"Political Economy you think is an enquiry into the nature and causes of wealth - I think it should be called an enquiry into the laws which determine the division of the produce of industry amonst the classes who concur in its formation. No law can be laid down respecting quantity, but a tolerably correct one can be laid down respecting proportions. Every day I am more satisfied that the former enquiry is vain and delusive, and the latter only the true objects of the science."

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(3) Finally, Keynes was not a follower of Bentham.

"We were amongst the first of our generation, perhaps alone amongst our generation, to escape from the Benthamite tradition. ... It can be no part of this memoir for me to try to explain why it was such a big advantage for us to have escaped from the Benthamite tradition. But I do now regard that as the worm which has been gnawing at the insides of modern civilisation and is responsible for its present moral decay. We used to regard the Christians as the enemy, because they appeared as the representatives of tradition, convention and hocus pocus. In truth it was the Benthamite calculus, based on an over-valuation of the economic criterion, which was destroying the quality of the popular Ideal." (X, pp. 445-6)

The phrase "Bedlamite economists" is a play on "Benthamite economists".

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There is not a word on The Theory of Economics in the above passage.

Indeed, it was at Keynes' explicit direction that the Royal Economic Society initiated the project of collecting, editing, and printing Bentham's economic writings in 1952.

As life-long enemy thereof, Keynes would surely not have taken this initiative if he had had reason to believe that the Royal Economic Society would thereby be rescuing bedlamite economics from 140 years of well-deserved oblivion.

Regards,

Gunnar