Jim Devine quoted Skidelsky on Keynes:
The basic question Keynes asked was: How do rational people behave under conditions of uncertainty? The answer he gave was profound and extends far beyond economics. People fall back on "conventions," which give them the assurance that they are doing the right thing. The chief of these are the assumptions that the future will be like the past (witness all the financial models that assumed housing prices wouldn't fall) and that current prices correctly sum up "future prospects." Above all, we run with the crowd. A master of aphorism, Keynes wrote that a "sound banker" is one who, "when he is ruined, is ruined in a conventional and orthodox way." (Today, you might add a further convention — the belief that mathematics can conjure certainty out of uncertainty.)
According to Keynes, falling back on "conventions" isn't how "rational" people behave in the face of "uncertainty" in this particular sense.
They consciously acknowledge the uncertainty and, to avoid the fate of Buridan's ass, act capriciously, a claim Keynes makes both in the Treatise on Probability (Collected Writings, vol. VIII, p. 32) and in a 1938 letter to Townshend (vol. XXIX, p. 294).
Individuals fall back on "conventions" where they are psychologically unable consciously to acknowledge uncertainty. Such uncertainty provokes disabling anxiety in those who have not fully mastered fear of death (given that "in the long run, we are all dead").
In so doing, they "overlook" "awkward facts". They act psychopathologically rather than rationally with the motive of escaping the anxiety, i.e "peace and comfort of mind require that [they] should hide from [themselves] how little [they] foresee." (vol. XIV, p. 124)
The "conventional" forecasting practices they employ for this purpose deny not only the fact of "uncertainty"; they also deny, "hide", the "awkward fact" that "we know from extensive experience" that "it is most unlikely that the existing state of affairs will continue indefinitely."
The first of Keynes's three forecasting "conventions" (vol. XIV, p. 114) assumes "that the existing state of affairs will continue indefinitely, except in so far as we have specific reasons to expect a change." It assumes that "the present is a much more serviceable guide to the future than a candid examination of past experience would show it to have been hitherto", that "contrary to all likelihood, ... the future will resemble the past." (vol. XIV, p. 124)
Indeed, so deeply anchored is the attachment to the "convention by which we assume the future to be much more like the past than is reasonable," that "it continues to influence our minds even in those cases where we do have good reason to expect a definite change."
"The idea of the future being different from the present is so repugnant to our conventional modes of thought and behaviour that we, most of us, offer a great resistance to acting on it in practice."
Notes taken by Keynes's students in the 1930s, record him explicitly describing this "conventional" practice as "irrational".
"it is the habit of human beings to make guesses on very inadequate evidence. People go right on making these guesses, even though there is no recorded instance of one of them ever being right. Actually, the realized Q's [future yields of capital assets] vary widely, and it is the early Q's in the series which exert a wholly irrational influence on investors, especially in the United States, where it has gone so far that railway property is valued on the basis of last week's receipts." (notes of Fallgatter as reproduced by Thomas Rymes in Keynes's Lectures 1932-1935: Notes of a Representative Student, pp. 116-20)
The mathematical and statistical methods associated with the "efficient markets hypothesis" are a particular form of this "conventional" practice. On Keynes's psychological assumptions, they express the same obsessional psychopathology.
The assumption that Keynes is treating financial market behaviour as "rational" is also contradicted by his claim that the
""vast majority of those who are concerned with the buying and selling of securities know almost nothing whatever about what they are doing. They do not possess even the rudiments of what is required for a valid judgment, and are the prey of hopes and fears easily aroused by transient events and as easily dispelled. This is one of the odd characteristics of the capitalist system under which we live, which, when we are dealing with the real world, is not to be overlooked."
Ironically, in his biography, Skidelsky interprets Keynes's economics as underpinned by psychoanalytic psychological assumptions. e.g.
"In Keynes's view capitalism's driving force is a vice which he called 'love of money'. " (vol. II, p. 221)
"His visit to Soviet Russia in the late summer of 1925 had triggered or, more accurately, reactivated reflections on the moral value of capitalism, and he told Lydia on 6 November that he had written 'some philosophical pages about Love of Money'. Another important influence at this time was Freud. In June of that year, James Strachey had reported Keynes 'engrossed in the Case Histories [of Freud].' Keynes was fascinated by Freud's reflections on the pathology of money, particularly its association with the anal sadistic character, and by the Freudian mechanism of sublimation. Freud enabled him to build on his insight into the sacrificial nature of capitalism, first expressed in The Economic Consequences of the Peace. Here the price of economic progress is seen as the cultural deformation of the 'rentier bourgeoisie', who have sacrificed the 'arts of enjoyment' to 'compound interest'. Was there any escape from the dilemma that economic progress seemed to depend on motives condemned as immoral by religion and neurotic by psychology?" (vol. II, p. 234)
"Keynes's thesis was that the engine of capitalism was driven by a neurosis which he calls 'love of money'; but this neurosis is also the means to the good, because it is the means to the abundance which will make capitalism unnecessary." (vol. II, p. 236)
"His ethics and psychology do eventually link up dramatically with his economics. Whereas in the 1920s, they pulled in different directions - 'love of money' was morally and psychologically bad, but economically good - by the 1930s 'love of money' has become economically bad. It could be said that Keynes changed his theory to suit his morals. To work well capitalism requires less puritanism, more hedonism. More likely, Keynes's dislike of exaggerated purposiveness - which he thought of as essentially irrational - alerted him to its possible role in the malfunctioning of capitalism." p. 238
As the third of these passages indicate, it's not true that Keynes's ultimate purpose was "to save" capitalism. His ultimate purpose was to "make capitalism unnecessary", i.e. to eliminate "the essential characteristic of capitalism", "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."
Ted _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
