Re: Why Heterodox are subject to be losers.

[Ted Winslow <egwinslow@xxxxxxxxxx>]

Mathew wrote:

> Minsky used to say that Keynes's theory was a Special theory, not a
> General Theory--a theory of capitalism, "one in which private ownership
> of the means of production results in incomes to owners that in each
> case depends upon how a particular set of capital assets, organized in
> firms, performs in some markets."  For Minsky, Keynes's theory was even
> more specific than this, because it also reflected the particular type
> of capitalism that ruled at Keynes's time, i.e., "a small government
> economy with a sophisticated and evolving financial structure that had
> Central Banks that were reluctant to intervene" as opposed to
> "today's...big government economies with even more sophisticated
> evolution prone financial structures which have Central Banks that are
> willing to intervene." (H. P. Minsky, "The Endogeneity of Money," in
> Nicholas Kaldor and Mainstream Economics, ed. by Nell and Semmler,
> 1991.)

It is a "special" theory in this sense i.e. a theory of capitalism, but
according to Keynes what makes it "special" is capitalism's "essential
characteristic": "the dependence upon an intense appeal to the
money-making and money-loving instincts of individuals as the main
motive force of the economic machine. (IX, p. 293)"  As he immediately
goes on to say, this is not true of all "phases of social
organisation": "historians can tell us about other phases of social
organisation in which this motive has played a much smaller part than
it does now" (p. 293).  He regarded this "in itself" of "capitalism" as
"in many ways extremely objectionable" and set as the problem for the
long term future the working out of "a social organisation which shall
be as efficient as possible without offending our notions of a
satisfactory way of life.  (p. 294)"

Through his "three fundamental psychological factors" he provides a
framework for analyzing any economy that is "capitalist" in this sense,
so from this perspective it isn't "more specific" in the way suggested
by Minsky.  But, so generalized, these psychological factors through
which Keynes's embodies "the essential characteristic of capitalism" in
his economics are mere "dry bones".  To fit them to a specific
capitalist economy in a specific time and place requires the use of
"human logic" to add the flesh that will capture the particular form
they take in a particular time and place.  This is one key aspect of
the "Big Deal" that issues from treating social relations as "internal
relations."

So it isn't just the "atomism" of the premise that all economies are
"composed of individual, self-interested agents - both
utility-maximizing households and profit-maximizing firms - pursuing
their own self-interest" that Keynes rejects.  It's also the
utilitarianism.  He rejects it both as a description of how real
persons do or could behave and of how they should behave.

He is particularly scathing in many contexts about its shortcomings as
a basis for ethics, i.e. as a rational conception of "self-interest,"
of how people should behave.

In "My Early Beliefs" he calls the "Benthamite tradition" "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." (“My
Early Beliefs” in Collected Writings, vol. X, pp. 445-6)

He claims a true conception of the Ideal would emphasize “non-economic
interests”:

"Up to a point individual saving can allow an advantageous way of
postponing consumption.  But beyond that point it is for the community
as a whole both an absurdity and a disaster.  The natural evolution
should be towards a decent level of consumption for every one; and,
when that is high enough, towards the occupation of our energies in the
non-economic interests of our lives.  Thus we need to be slowly
reconstructing our social system with these ends in view." (XXI, p. 393)

In "The End of Laissez-Faire" he says that: "One can sympathise with
the view of Coleridge, as summarized by Leslie Stephen, that 'the
Utilitarians destroyed every element of cohesion, made Society a
struggle of selfish interest, and struck at the very roots of all
order, patriotism, poetry, and religion." (X, p. 277)

Even if we ignore the content of the "utility function," its form
remains, according to Keynes, incompatible with a true conception of
the Ideal because it is incompatible with "the ethical doctrine of
organic unity."

"He found Abba Lerner's The Economics of Control a 'grand book',
deploring only its reliance on 'Benthamite arithmetic', which led
Lerner to advocate income equality.  'The whole complication and
fascination (and truth) of the ethical doctrine of organic unity passes
you by ...' he wrote to him, in a half-remembered echo of the debates
of his youth." (Skidelsky, vol. 3, p. 361)

Keynes's assumptions about capitalist motivation are also not
"utilitarian" i.e. he doesn't regard utilitarian psychology as a
realistic description the motivation dominant in capitalism.

"it was, I think, an ingredient in the complacency of the nineteenth
century that, in their philosophical reflections on human behaviour,
they accepted an extraordinary contraption of the Benthamite School, by
which all possible consequences of alternative courses of action were
supposed to have attached to them, first a number expressing their
comparative advantage, and secondly another number expressing the
probability of their following from the course of action in question;
so that multiplying together the numbers attached to all the possible
consequences of a given action and adding the results, we could
discover what to do.  In this way a mythical system of probable
knowledge was employed to reduce the future to the same calculable
status as the present.  No one has ever acted on this theory.  But even
today I believe that our thought is sometimes influenced by some such
pseudo-rationalistic notions." (XIV, p. 124)

I don't think he would have been surprised, however, that
utilitarianism has become even more dominant in economics, so dominant
in fact that his own economics is interpreted as grounded in
utilitarianism,  This fact is explainable by the psychology on which
his economics is actually based (as is suggested by his description of
economists who treat utilitarian premises as self-evidently true as
"Bedlamite economists").

"mathematical (economic) models are rigorous (and 'true' in the only
useful scientific sense of the word) if they are built on a cogent
axiom base - like von Neumann and Morgenstern, and Debreu."
(Weintraub, How Economics Became a Mathematical Science, p. 100)

Ted