Julio Huato wrote:
I don't think so.
One thing is (informational) *efficiency* and another thing is
*correctness*. That asset prices incorporate all available
information means that the prices (or, rather, the processing
mechanism that churns out those prices) is efficient. Whether an
efficient (or efficiently generated) price turns out to be correct or
not is something that can only be established ex post.
This, of course, leads to the key question splitting Keynesians from
Classicals: Do correct asset prices exist independently of the pricing
mechanism itself (financial markets)? Keynes (GT, 12) argues
compelling that they don't. I say it doesn't matter. I'm not moved
by Keynes appeal to convention (the ergodic assumption).
It's a deux ex machina. Where do conventions come from? Do they
adjust over time? If they do, how? Just to spell out a bit more of
what is on my mind: the Bayesian interpretation of uncertainty is
broad enough to incorporate Keynesian conventions as elements in a
probability space and -- thus -- define fairly operational statistical
procedures to update the Keynesian conventions.
By appealing to convention, Keynes admits that the self-referential
character of social uncertainty (what Soros calls "reflexivity")
doesn't sink people into nihilism and paralysis. At least not all
people all the time. For the most part, most people still lead their
lives and make their choices. In this sense, I'd say, the subjective
interpretation of probability is explicitly Hegelian and Marxian.
But the underpinning hypothesis is that the expectations behind the
behaviour that determines prices in these markets can be and are
"correctly" formed incorporating all available information so that in
this sense "financial markets always price assets correctly".
Whether or not Skidelsky is using "correctly" is this defensible sense
has, however, nothing to do with whether or not Keynes's theory of
financial markets is a better theory than the EMH.
Keynes's forecasting "conventions", as the texts I've just quoted
demonstrate, are understood by him to be expressions of irrationality,
of the particular "psychopathology" that he assumes dominates
behaviour in financial markets. They, like the "hoarding" of money
based on a "feeling about money" that "is itself conventional or
instinctive", are instinctively anchored irrational means of avoiding
anxiety.
Keynes claims the irrationality involved is understandable and
predictable by those not themselves subject to it. This makes
possible rational "speculation" where "speculation" is defined as "the
activity of forecasting the psychology of the market." Keynes's own
investment strategy was rational "speculation" in this sense.
Rational prediction here is understood in terms of a philosophy of
probability best elaborated by Whitehead. The ontological premises on
which this philosophy is based have much in common with the
ontological premises of Hegel and Marx.
These premises are also the basis of Keynes's judgement that the long
run yields of capital assets are frequently "uncertain" in his
particular sense so that no rational basis is available for predicting
them. The parallel with Hegel is found in Hegel's claim, repeated and
endorsed by Alfred Marshall, that:
"Rulers, Statesmen, Nations, are wont to be emphatically commended to
the teaching which experience offers in history. But what experience
and history teach is this – that peoples and governments never have
learned anything from history, or acted on principles deduced from
it. Each period is involved in such peculiar circumstances, exhibits
a condition of things so strictly idiosyncratic, that its conduct must
be regulated by considerations connected with itself, and itself
alone. Amid the pressure of great events, a general principle gives
no help. It is useless to revert to similar circumstances in the
Past. The pallid shades of memory struggle in vain with the life and
freedom of the Present. Looked at in this light, nothing can be
shallower than the oft-repeated appeal to Greek and Roman examples
during the French Revolution. Nothing is more diverse than the genius
of those nations and that of our times."
<http://www.marxists.org/reference/archive/hegel/works/hi/history2.htm>
What you say about Keynes's "conventions" above doesn't "get these
facts right".
Ted
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