PKT message, Re: Backed Money-etc. - Reply To Winslow re. Whitehead

Ted:

You wrote:

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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I just looked up Whitehead - he is talking SOCIOLOGY rather than Theory of Economics:

"It is now time to give some illustration of assertions already made. Consider our main conclusions that our traditional doctrines of SOCIOLOGY, of political philosophy, of the PRACTICAL CONDUCT OF LARGE BUSINESS, and of POLITICAL ECONOMY are largely warped and vitiated by the implicit assumption of a STABLE UNCHANGING SOCIAL SYSTEM. With this assumption it is comparatively safe to base reasoning upon a simplified edition of human nature. For well-known stimuli working under well-known conditions produce well-known reactions. It is safe to assume that human nature, for the purpose at hand, is adequately described in terms of some of the major reactions to some of the major stimuli. For example, we can all remember our old friend, the ECONOMIC MAN.

"The beauty of the economic man was that we knew exactly what he was after. Whatever his wants were, he knew them and his neighbours knew them. His wants were those developed in a well-defined social system. His father and grandfather had the same wants, and satisfied them in the same way. So whenever there was a shortage, everyone - including the economic man himself - knew what was short, and knew the way to satisfy the consumer. In fact, the consumer knew what he wanted to consume. This was the demand. The producer knew how to produce the required articles, hence the supply. The men who got the goods on the spot first, at the cheapest price, made their fortunes; the other producers were eliminated. This was healthy competition. This is beautifully simple and with proper elaboration is obviously true. It expresses the dominant truth exactly so far as there are stable well-tried conditions. But when we are concerned with a SOCIAL SYSTEM which in important ways is changing, this simplified conception of human relations requires severe qualifications.

"It is, of course, common knowledge that the whole trend of political economy during the last thirty or forty years has been away from these artificial simplifications. Such sharp-cut notions as 'the economic man', 'supply and demand', 'competition', are now in process of dilution by a close study of the actual re-actions of various populations to the stimuli which are relevant to modern commerce. [I.e., PSYCHOLOGY - insert GT]. This exactly illustrates the main thesis. The older political economy reigned supreme for about a hundred years from the time of Adam Smith, because IN ITS MAIN ASSUMPTION IT DID APPLY TO THE GENERAL CIRCUMSTANCES OF LIFE AS LED, then and for innumerable centuries in the past. Etc. etc." ('Adventures of Ideas', Free Press Paperback, 1967, pp. 93-94)

Let me make two points.

(1) Here is what Adam Smith wrote in 'Wealth of Nations' with respect to Economic Science and "the general circumstances of life as led, then and for innumerable centuries in the past":

"The agricultural systems of political economy will not require so long an explanation as that which I have thought it necessary to bestow upon the mercantile or commercial system.

"That system which represents the produce of the land as the sole source of the revenue and wealth of every country has, so far as I know, NEVER BEEN ADOPTED BY ANY NATION, and it at present exists only in the speculations of a few men of great learning and ingenuity in France. It would not, surely, be worth while to examine at great length the errors of a system which never has done, and probably never will do, any harm in any part of the world. I shall endeavour to explain, however, as distinctly as I can, the great outlines of this very ingenious system.

"[...]

"THIS SYSTEM, however, with all its imperfections IS, PERHAPS, THE NEAREST APPROXIMATION TO THE TRUTH THAT HAS YET BEEN PUBLISHED UPON THE SUBJECT OF POLITICAL ECONOMY, and is upon that account well worth the consideration of every man who wishes to examine with attention THE PRINCIPLES OF THAT VERY IMPORTANT SCIENCE." (Book IV, Ch. 9)

Bentham's monetary writings concern "the principles of that very important science," on which Whitehead had nothing to say.

(2) The stuff of which Whitehead spoke, it is NO PART OF THE CLASSICAL THEORY OF ECONOMICS. Instead, it reflects the nonsense turn taken by theoretical economics after mid-nineteenth century as lesser talent than John Stuart Mill attempted to move economic SCIENCE beyond what Schumpeter would later describe as Mill's "half-way house".

Mill himself recognized it - in my view, properly - as the END STATION of the Ricardian branch of the classical research agenda. In this respect, I wonder if most PKT economists would agree with the contrary view, which Milton Friedman alluded to in his put-down of Mill:

"If a class of "economic phenomena" appears varied and complex, it is, we must suppose, because we have no adequate theory to explain them. Known facts cannot be set on one side; a theory to apply "closely to reality," on the other. A theory is the way we perceive "facts," and we cannot perceive "facts" without a theory. Any assertion that economic phenomena are varied and complex denies the tentative state of knowledge that alone makes scientific activity meaningful; it is in a class with John Stuart Mill's JUSTLY RIDICULED STATMENT that "happily, there is nothing in the laws of value which remains [1848] for the present or any future writer to clear up; the theory of the subject is complete."" (''The Methodology of Positive Economics', in Essays In Positive Economics, University of Chicago Press, 1974, p. 34)

Friedman asserts that economic theory is something designed "to apply 'closely to reality'..." - as is the case with Newtonian orbital mechanics within the solar system.

By this criterion, of course, there exists no economic theory - for, as in the Newtonian case, the sole criterion of any would-be economic theory's merit must be its predictive success.

Considering also the failure of mainstream economists to establish one "operationally meaningful theorem" following Samuelson's call to arms against "the unmistakable signs of decadence which were clearly present in economic thought prior to 1930" (Foundations, p. 4), perhaps it is time to develope "an apparatus of the mind, a technique of thinking" to fill the void created by the advent of neo-classical economics in the second half of the 19th century.

Gunnar