Re: Fundamentals

[Ted Winslow <winslow@xxxxxxxx>]

John Legge wrote:

> In the sense that every fundamental particle in the universe has a spin,
> charge, position and velocity determinate to the level permitted by
> Heisenberg the point of departure for any real process (and if you accept
> the idea of a material brain, every imaginary one too) is determinate.

and

> If you use the term "fundamental" in a less fundamental way, as I do, and
> apply it to the problem of determining what a reasonable person might
> reasonably pay for an income-generating asset, when not influenced by
> speculative or beauty contest motives, the Dixit and Pindyck approach, or
> any other approach based on uncertainty increasing with the time from now to
> the expected event, produces a pragmatically acceptable result.
>
> Such approaches also suggest a rational liquidity preference and offer
> micro-level support to Keynes as distinct from Marshall and the finance
> textbooks which suggest that investments with an infinitesimally positive
> interest rate are to be preferred to holding cash.

Determinism of the kind asserted in the first passage is inconsistent with
the possibility of rational "choice" implicitly asserted in the second.  You
are claiming, for instance, both that future holdings of money are
"determined" and that they are not "determined" (i.e. they can be changed by
present decisions).

The last time I pointed this out you responded by claiming that this logical
difficulty had been resolved by Monod.  As I tried to show you (by means of
a passage from Monod), he did not and could not do this.  The logical
difficulty can only be resolved by amending the determinist ontological
premises that lead to it.  Whitehead provides a set of amendments to these
foundations that, so he claims, do this while preserving the positive
content of both relativity and the quantum theory (see, for example, Science
and the Modern World).

I've also pointed out that Marshall is not a good choice as representing a
view of the future antithetical to Keynes's.  Marshall in fact anticipates
Keynes's idea of fundamental or true uncertainty.  This derives from his
ontological view (derived from Hegel) that social relations are internal
relations.  This provides a different way of theorizing inertia and true
uncertainty, a way incompatible, however, with the universal applicability
of algebra or of any other form of reasoning (e.g. Paul's "deductive Post
Keynesianism") that makes use of the "variable".

>
> The ontological idea of "organic unity" that underpins the claim that "man
> himself is in a great measure a creature of circumstances and changes with
> them" is both one of the main sources of true uncertainty and one of the
> main reasons economics must be part of a "more general social science".
>
> The connection of the claim to true uncertainty was pointed to by Marshall
> himself.
>
> To begin with, here is another passage, very similar to the portmanteau
> quotation used by Keynes, in which Marshall explicitly identifies the
> "subject-matter" of economics with "human nature" so that the "pliability of
> human nature" means that economics is a science whose "subject-matter ...
> passes through different stages of development".
>
> "For the sake of simplicity of argument, Ricardo and his followers often
> spoke as though they regarded man as a constant quantity, and they never
> gave themselves enough trouble to study his variations.  The people whom
> they knew most intimately were city men; and they sometimes expressed
> themselves so carelessly as almost to imply that other Englishmen were very
> much like those whom they knew in the city. ...  As the [19th] century wore
> on ... people were getting clearer ideas as to the nature of organic growth.
> They were learning that if the subject-matter of a science passes through
> different stages of development, the laws which apply to one stage will
> seldom apply without modification to others; the laws of the science must
> have a development corresponding to that of the things of which they treat.
> The influence of this new notion gradually spread to the sciences which
> relate to man; and showed itself in the works of Goethe, Hegel, Comte and
> others.  ...  Economics has shared in the general movement; and is getting
> to pay every year a greater attention to the pliability of human nature, and
> to the way in which the character of man affects and is affected by the
> prevalent methods of the production, distribution and consumption of
> wealth."  (Marshall, Principles, Variorum ed., Vol. 1, pp. 762-764)
>
> This repeats the claim made at the beginning of the Principles that "the
> influence of circumstances in fashioning character is generally recognized
> as the dominant fact in social science."  (Vol. 1, p. 48) (This "fact" is,
> of course, rather far from being "generally recognized" in contemporary
> economics.) Marshall, like Marx, points to "the prevalent methods of the
> production, distribution and consumption of wealth" as the most important of
> these circumstances (see also Vol.1, pp. 1-2).
>
> This assumed "pliability of human nature" plays a key role in Marshall's
> idea of "normal".
>
> "The course of action which may be expected under certain conditions from
> the members of an industrial group is the normal action of the members of
> that group relatively to those conditions."
>
> Because of "the influence of circumstances in fashioning character", normal
> action is not fixed; it varies with the changes in character produced by
> changing circumstances.  For instance,
>
> "the normal condition of many of the very poorest inhabitants of a large
> town is to be devoid of enterprise, and unwilling to avail themselves of the
> opportunities that may offer for a healthier and less squalid life
> elsewhere; they have not the strength, physical, mental and moral, required
> for working their way out of their miserable surroundings.  The existence of
> a considerable supply of labour ready to make match-boxes at a very low rate
> is normal in the same way that a contortion of the limbs is a normal result
> of taking strychnine.  It is one result, a deplorable result, of those
> tendencies the laws of which we have to study.  This illustrates one
> peculiarity which economics shares with a few other sciences, the nature of
> the material of which can be modified by human effort.  Science may suggest
> a moral or practical precept to modify that nature and thus modify the
> action of laws of nature." (Vol. 1, pp. 35-6)
>
> The pliability also has implications for our ability to make rational
> long-run forecasts.  Marshall connects "normal action" to the long run in a
> way that makes the long run very difficult to predict.  The problem is that
> current "normal action" will only be continued into the long run if the
> "conditions" on which it depends persist.
>
> "Normal economic action is that which may be expected in the long run under
> certain conditions (provided those conditions are persistent) from the
> members of an industrial group." (Vol. 1, p. 34}
>
> "Again when 'normal' prices are contrasted with temporary or market prices,
> the term refers to the dominance in the long run of certain tendencies under
> given conditions.  But this raises some difficult questions which may be
> postponed." (Vol. 1, p. 36)
>
> As in Keynes, however, the "given conditions" are very unlikely to remain
> unchanged in the "long run". It is this that "raises some difficult
> questions".
>
> "It is true however that the condition that time must be allowed for causes
> to produce their effects is a source of great difficulty in economics.  For
> meanwhile the material on which they work, and perhaps even the causes
> themselves, may have changed; and the tendencies which are being described
> will not have a sufficiently 'long run' in which to work themselves out
> fully." 36
>
> In the following claim, Marshall himself implicitly accepts that this might
> create true uncertainty about future consequences.
>
> "Greater risks are taken where no attempt is made to forecast the future,
> while considering methods of action or inaction that will largely affect the
> future, than by straining inadequate eyes in reading such faint indications
> of the future as may be discerned by them." (Industry and Trade, p. 506)

As I've said and as Marshall himself points out, internal relations pose a
problem for the use of algebra (including algebra of the kind involved in
"incomputable complexity"), the problem pointed to by Whitehead.

"In logical reasoning, which proceeds by the use of the variable, there are
always two tacit presuppositions - one is that the definite symbols of
composition can retain the same meaning as the reasoning elaborates novel
compositions.  The other presupposition is that this self-identity can be
preserved when the variable is replaced by some definite instance.  Complete
self-identity can never be preserved in any advance to novelty.  The only
question is, as to whether the loss is relevant to the purposes of the
argument.  The baby in the cradle, and the grown man in middle age, are in
some senses identical and in other senses diverse.  Is the train of argument
in its conclusions substantiated by the identity of vitiated by the
diversity?" (Modes of Thought, p. 107)

This has implications for the meaning of "rationality".  Rationality cannot
reaonably be identified with "logical reasoning which proceeds by the use of
the variable".

Apart from this, why must we assume that thought and behaviour are
everywhere and always "rational" let alone everywhere and always
representable with algebra?  The stock market behaviour pointed to in the
NYT magazine article by Michael Lewis I recently posted doesn't fall into
either of these categories, does it?

Schumpeter had a much more positive view of the psychology on which Keynes's
economics is based.

"Freudian Psychology.  Before the end of the century psychoanalysis was a
therapeutic method - to be traced to the teaching of J.M. Charcot in Paris -
that had scored remarkable successes, especially in the cases of
'hysterical' inhibition of motion, in the hands of Josef Breuer and Sigmund
Freud.  But about 1900, though it always remained a therapeutic method, it
began to reveal a very much wider aspect - it began to develop into a
general theory of the working of the human mind.  The old idea of a
subconscious personality and its struggles with the conscious ego was
elaborated and made operational with unsurpassable effectiveness by Freud.1
Again I cannot - and perhaps need not - do more than point to the vast
possibilities of application to sociology - political sociology especially -
and economics that seem to me to loom in the future: a Freudian sociology of
politics (including economic policies) may some day surpass in importance
any other application of Freudism, though so far only a small beginning has
been made (W.H.R. Rivers)."
Footnote:
"1. Freud's writings are now available in a cheap American edition to which
the reader is referred.   It occurs to me that my few sentences on Freud
might be interpreted in a derogatory sense.  Nothing could be further from
my intention.  All great achievements are but final acts of birth that are
preceded by long prenatal histories.  Freud had a large number of pupils who
split up, however, into different groups, some of which cannot be called
Freudian any more.  But potential fertility for the social sciences is a
feature of all of them (all of them I know, that is)."  (History of Economic
Analysis pp. 798-9)

Ted
--
Ted Winslow                            E-MAIL: WINSLOW@xxxxxxxx
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