I have always enjoyed the way John Maynard Keynes had with words. He was responsible for many a bon mot, such as “in the long run we are dead” (skewering the idea of long-run equilibrium in economics), “It is better to be roughly right than precisely wrong”, “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone” and (my favourite) “Markets can remain irrational a lot longer than you and I can remain solvent”.
Today I read a rather scathing piece on the performance of economists in the lead up to and throughout the financial crisis, which included this rather longer but nevertheless brilliant quotation from Keynes.
The completeness of the [orthodox] victory is something of a curiosity and a mystery. It must have been due to a complex of suitabilities in the doctrine to the environment into which it was projected. That it reached conclusions quite different from what the ordinary uninstructed person would expect, added, I suppose, to its intellectual prestige. That its teaching, translated into practice, was austere and often unpalatable, lent it virtue. That it was adapted to carry a vast and consistent logical superstructure, gave it beauty. That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, [with] the attempt to change such things as likely on the whole to do more harm than good, commended it to authority. That it afforded a measure of justification to the free activities of the individual capitalist, attracted to it the support of the dominant social force behind authority. But although the doctrine itself has remained unquestioned by orthodox economists up to a late date, its signal failure for purposes of scientific prediction has greatly impaired, in the course of time, the prestige of its practitioners. For professional economists…were apparently unmoved by the lack of correspondence between the results of their theory and the facts of observation—a discrepancy which the ordinary man has not failed to observe, with the result of his growing unwillingness to accord to economists that measure of respect which he gives to other groups of scientists…
John Maynard Keynes, The General Theory of Employment, Interest and Money (1936; London: Macmillan, 1964) 32–3
I have a copy of the General Theory, which I have only skimmed. One day I really should read the whole thing. In fact, there’s even a Kindle edition for $3, so maybe that day is not too far away…
Photo credit: Wikimedia Commons.
Possibly Related Posts (automatically generated):
- Come Back Keynes, All Is Forgiven! (16 October 2008)
- My Mechanical Turk (30 December 2008)
- What will the Reserve Bank do this week? (3 October 2011)
- The Chinese growth engine (16 December 2010)
My favourite JMK piece is:
… professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likely to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one’s judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and some higher degrees. Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than on a mathematical expectation, … Most … of our decisions to do something positive, … can only be taken as a result of animal spirits—of a spontaneous urge to action rather than inaction—and not to the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities. Enterprise only pretends to itself to be mainly actuated by the statements in its own prospectus, however candid and sincere. Only a little more than an expedition to the South Pole is based on an exact calculation of benefits to come.”
Stubborn,
Yep, I’ve read that piece, too.
Although you’re a mathematician, it did hurt you, didn’t it? I imagine it did, as it hurt me, and I am no economist, either :D.
In fact, I bet that article is more likely to hurt those who are not economists, but know something, even if just a little, about economics; than those who are economists by training, and don’t know crap about it.
And allow me to argue this.
The Keynes quote you cite is from 1936. This is a bit of that quote:
“But although the doctrine itself has remained unquestioned by orthodox economists up to a late date, its signal failure for purposes of scientific prediction has greatly impaired, in the course of time, the prestige of its practitioners”.
The hodgepodge today’s economists consider their “science” could be charged with the same crimes, with one additional aggravating circumstance: Friedman based the legitimacy of today’s neoclassical “economics” on its ability to produce… useful predictions, as he admitted it does not describe reality!
And we’re talking eighty years down the track, my friend.
And, if you dig a bit on that very same quote, you’ll find some very plausible reasons why neoclassical economics today is as impervious to change as the orthodoxy was in Keynes’ times. But I’ll leave that to you.
While working in the King’s College archive in 1991 as a grad student I had the job of ordering JMK’s Fellowship Dissertation which was hand-written and had fallen apart (he never did a Ph.D. as was normal in Cambridge then). I had to try to work out which sentences, which were mostly in probability notation, matched from page to page.
While there the archivist showed me a card that was in Keynes’ archive. On one side was a list he made on the eve of his marriage to the Russian ballerina Lydia Lopokova (“John Maynard Keynes had so many brains/ He had enough left over for Lydia Lopokova” as Dadie Rylands wrote). It was a list of every man he had ever slept with including Duncan Grant. An early entry just said “Stable boy in Belgravia”.
On the reverse side was a list of quarterly dates (using Cambridge terms eg Michaelmas) and four columns headed with the letters ): an O or C, A, P and W. There were numbers in each horizontal line for each entry of the order 20-30. A final column kept a running annual total (with one summation error I found so I can say I have corrected JMK). Nobody had ever been able to work out what the letters stood for. Those of a lascivious nature suggested they stood for possible sexual acts (use your imagination). I thought maybe they stood for Claret, Ale, Port & Wine and were a tally of his College drinks tab (O=?). It remains a mystery to this day.
After reading this post, I had a look at some of the “Possibly Related Posts”.
Have a look at the comments to “Come Back Keynes, All Is Forgiven!” (16 October 2008). The last one, by a Brendan, was posted on October 24, 2008 at 5:13 pm.
Now tell me, doesn’t that comment appear to be an accurate prediction? And written, in black and white, for all to see. Unfortunately, Brendan did not argue his statement so that we could conclusively discard a fluke; even though, at face value, a fluke seems unlikely.
Which goes to show something: predictions don’t need to be quantitative or to be attached to a time frame to be accurate. All those details would add to the credibility of the prediction, to be sure, but are not essential: what is vital is an explanation of the way the prediction was made.
Another quote for the mix.
In the preface to the 2008 edition of hyman minsky’s book on Keynes the preface notes that the most important thing minsky and Keynes had in common was that neither was a Keynesian.
Jimbo,
You know, for some reason, your post reminded me of how much common people like us revere and idealize great figures like Keynes.
And we tend to forget that people like Keynes, however brilliant, were also human beings, probably not that different from us.
So, here is another excellent quote (this time not from Keynes), that makes this point:
“Au plus elevé throne du monde si ne sommes assis que sus notre cul.
Les Roys et les philosophes fientent, et les dammes aussi”.
(Upon the highest throne in the world, we are seated, still, upon our arses.
Kings and philosophers shit, and so do ladies).
Michel de Montaigne
PS: Stubborn, sorry for the language. At least we can justify this on the basis that Montaigne (a philosopher, statesman, writer, nobleman and true Renaissance man) wrote it, we’re just quoting and translating from him. Besides, it’s in French.
Marco: excellent quote. Montaigne was another master of the bon mot.
One thing is worth keeping in perspective is the extent to which neoliberalism has ever really appeared down under – 11 years of Howard hardly unleashed the horses of unbridled market forces – if anything it was some minor tweaking of priorities on the margins of what is still a fairly substantially regulated mixed economy . Even the responses to the gfc, rhetoric aside, were differences of degree only. I suppose one of the good things is that our debates on economic theory tend to have little relevance to what actually happens in Australia – we live in moderate climate. 27 degrees is con sidered stinky hot and 24 degrees somewhat chilly