Philosophical Issues in Economics
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- Bu səhifədəki naviqasiya:
- Relationship between choice, preference and self-interest
- Bases for Selection Sympathy
- Conventional Rule Following
- Reputation and Indirect Effects
- Social Commitments and Moral Imperatives
- Table 1: Dinner parties in Shantiniketan Preference order: M>B>O>PASS
- Table 2: Dinner parties in Trinity College 60 Preference order: B>O>M>PASS 61
- Setting: Master of Trinity Bundle (Menu) Position Choice
- Table 1.2: Sense’s selection bases (Shantiniketan)
- Table 2.2: Senses selection bases (Trinity College)
- VI. Irrationality and rationality – Keynes
- (III) Ideas of defunct economists: dangerous for good and evil 94
- The ultimate decision then reflects all of this input but also instinct, experience, and ‘feel’
BibliographyCollard, D. 1978. Altruism and Economy: A study in non-selfish economics. Oxford: Martin Robertson. Hahn, F. 1991. “Benevolence,” in J.G.T. Meeks (ed.). Thoughtful economic man: Essays on rationality, moral rules and benevolence. Cambridge: Cambridge University Press. Sen, A.K. 1977. “Rational Fools: A Critique of the Behavioral Foundations of Economic Theory,” in Philosophy and Public Affairs. Vol. 6, no. 4, pages 317-344. Sen, A.K. 1982. Choice, Welfare and Measurement. Oxford: Blackwell. Sen, A.K. 1997. “Maximization of the Act of Choice,” in Econometrica. Vol. 65, No. 4, pages 745-779. Sen, A.K. 1991. “Beneconfusion,” in J.G.T. Meeks (ed.). Thoughtful economic man: Essays on rationality, moral rules and benevolence. Cambridge: Cambridge University Press. Sen, A.K. 1999. Development is Freedom. Oxford: Oxford University Press. Essay 2 (by Maryam Tanwir) The classical thinkers have been seen as postulating that self-interest is the sole motive for all actions. You choose what you prefer; you prefer what you choose, as it augments your self interest. Amartya Sen differs from this argument. He postulates that people’s actions are guided by a variety of motives, of which most have strong shades of self-interest, while some may be devoid of it. Choice and preference don’t always coincide, sometimes you don’t choose what you prefer, and forgo a potential gain to yourself. He elaborates through an example. At a dinner party a basket of fruit is being passed around. You prefer a mango to an apple. But if you incorporate different circumstances you will not necessarily choose a mango. Some of the reasons for not choosing the mango will contain elements of self-interest while you may also choose not to opt for the mango for reasons that infer that you are not pursuing self-interest. To catalogue a range of bases on which a selection from the fruit basket might be made: The basket contains multiples of both fruit. There are a number of people present. Most have the same preference as you. Since the number of mangoes is more than one you choose what you prefer, your self-interest being directly served as you pick the mango. Or: There is only one mango and many people, but the hostess insists that you take the mango: here the value of the mango has not been tarnished by the price of rudeness, you gladly pick the mango, you choose what you prefer, and serve your self-interest. Or: If there are a number of people present with only one mango and the rest apples and you don’t know their preference, you still choose the mango, as the elements of sympathy and commitment cannot be introduced, due to lack of information. Or: If there is only one apple and one mango with only two people remaining at the dinner party and both of you prefer the mango to the apple, the number of possible actions will be:
Relationship between choice, preference and self-interest This is the crux of the debate. Is self-interest being served in every action or are there sometimes other reasons for choosing an action. Is commitment also a part of serving your self-interest as it produces the ‘feel good’ feeling? Are all actions motivated by self-interest? From Darwin’s theory of evolution we can borrow the dictate that self-interest is paramount for survival. So the struggle of the primitive man to survive might well be based on self-interest. It was the survival of the fittest. He had to constantly adapt to the changing environment to ensure his survival. His primitive instinct might then be governed by self-interest; it was a battle of him against the environment. But now when man has instead of adapting to the environment, has altered the environment to suit his survival, he now has the luxury of decreasing threats to his survival. He now has fashioned a society where self-interest is no longer the only paramount dictate. We now have social relations in terms of a fellow human being, a citizen, a parent, a spouse, a teacher, a philanthropist, where self-interest is no longer the prime governing feature in choosing an action, even if we have a preference for it, otherwise how do you explain the prevalence of self- interest in the following actions?
An interesting contribution to the notion of commitment and how it negates self-interest is made by Elias L khalil in his paper ‘sentimental fools: a critique of Amartya Sen’s notion of commitment’. He recognizes the complexity of commitment and tries to solve it without appealing to the ‘multiple self view’ proposed by Sen56. He does so by ‘distinguishing two kinds of commitment and explains how each relates differently to interest—a necessary distinction to discern admirable acts from sentimental foolishness.’ He explains the difference between the two types through examples. If one is impressed by the creative art involved in French cooking and takes on the commitment to try to become the best chef in the city. This would incorporate ‘non-binding’ commitment. It entails a promise that cannot be obligatory as the agent is uncertain if he can fulfill it. Non-binding commitment is about ambition, it bolsters welfare. On the other hand ‘binding commitment’ would entail the commitment which he makes to only use fresh ingredients, not cheat, be honest. Here the agent is sure that he can fulfill his commitment. Here his ability is not in doubt; the reason behind his commitment is therefore to counter the opportunistic gain, which would arise from cheating. This can diminish his material welfare. Another example would be: while the ability to climb a mountain is contingent on an uncertain ability and hence is non-binding, the commitment to rebuff bribes is not contingent on ability and is binding. Sen does not distinguish between the two types of commitment, but lumps them together, and opposes both of them to self-interest. His postulate that commitment negates self-interest makes sense only if he talks about binding commitment, non-binding on the contrary can augment self-interest. The problem is that authors may confuse the two kinds of commitment. This leads them to separate commitment from interest. This separation entails that the agent is constituted of multiple selves, which makes it impossible, as Khalil concludes ‘to distinguish sentimental fools from rational sentimentalists’.57 Conclusion. Is there always a clear link between choice, preference and self- interest? The answer has to be no. You may choose an action, which you don’t prefer (addiction, weak will, against your principles, self imposed choice constraints, strategic nobility etc), Sometimes our choices can be mistaken due to misinformation or expectations may prove to be wrong. We also make choices on principles and not for gain as we may choose due to binding commitment, which may undermine our self-interest. Maybe the major constraint in solely seeking our self-interest would lie in the fact that as rational individuals our tendency to maximize our material welfare at the expense of others is inhibited by a deeply ingrained set of moral values. This is all true if self-interest will allude to all the meanings we understand by the word but will not contain the ‘feel good’ after feeling58. For if you include that feeling then one can argue that there is absolutely no action devoid of self interest and one is augmenting his self-interest in every action. I would like to add here that there are various manifestations of self-interest. There are so many complexities involved in just choosing a piece of fruit from the basket; other decisions in life are so much more complex. Where the choices, the preferences, the consequences and degree’s of self-interest are uncertain and difficult to classify. Bibliography Amartya Sen, 1999. Development as Freedom. Oxford University Press Amartya Sen, 1979, ‘Rational fools: A critique of the behavorial foundations of economic theory’ in Philosophy and economic theory (eds.) F. Hahn and M. Hollis. Oxford University Press. Amartya Sen, 2002. Rationality and freedom. Harvard University Press. Elias L.Khalil ‘Sentimental fools: A critique of Amartya Sen’s Notion of commitment’. Working Paper. Charles K. Wilber ‘Economics and Ethics’ in The Elgar Handbook to Economic Methodology (eds.) John B. Davis, D.Wade Hands and Uskali Maki Dale T.Miller, 1999 ‘The norm of self interest’ American Psychologist, vol.54, no.12. Essay 3 (by John Ssegendo) Bases for Selection Sympathy Our conception of self interest may include our concern for others and sympathy may thus be incorporated with in the notion of a person’s own wellbeing. For example, presented with a basket containing a mango and several apples, Amartya’s preference might be the mango to apples, but he may choose an apple due to sympathy for his neighbour’s welfare. His neighbour would be happier if he is given the opportunity to choose a mango over an apple. Amartya Sense would in this situation opt for an alternative to his preferred option, if making his neighbour happy would improve his own welfare. Other regarding choice on basis of sympathy can thus be motivated on the basis of self interest after all. Commitment Amartya may choose a smaller piece of fruit, and pass on bigger ones, or an apple instead of a (preferred) mango which though at a person cost, could be merely out of a sense of duty or responsibility to other members at the dinner party. Amartya could be willing to make such a sacrifice to his personal welfare not for selfish reasons but due to strong values about the welfare of other members at the dinner party and therefore not merely sympathy to his neighbours at the dinner party. Such a choice based on commitment, though not based on self interest should still be regarded a reasoned choice since as observed by Sen (1999: 271): “…….even though committed behaviour may or may not be conducive to the promotion of one’s personal advantage (or wellbeing), such a pursuit need not involve a denial of a person’s rational will”. Similarly, Amartya may just wish to act responsibly owing to the fact that he is participating in picking a piece of fruit passed around at a dinner party, which act carries obligations. His choice behaviour may therefore be invoked by either a sense of duty or anticipated enjoyment from participating in picking a piece of fruit; or of both. Conventional Rule Following Amartya’s selection of an apple instead of a ‘preferred’ mango “may be simply following an established rule of “proper behaviour” (as the-on-going norm), rather than by being influenced by direct welfare effects, or by reputation, or even any self-consciousness ethics (Sen 1997). Selection on this basis is not out of self interest but one in my view influenced by commitment to wider society values and norms of behaviour. As summarised by Sen (1997:751). “herd behaviour” not only has epistemic effects of learning from others’ choices (or being deluded by them….) but can be linked with the possibility that joining a “herd” makes the choices less assertive and perspicuous”. Hence Amartya may make a choice based largely on ‘just’ following rules. Reputation and Indirect Effects Amartya may make a choice that is just convenient to ‘save his face’ and anticipate to profit in the future from having the reputation of being a considerable person who does not grab the last mango from the fruit basket. The motivation to keep his reputation may therefore hinder Amartya from making a choice that directly maximises his welfare. In my view making a choice with the aim of benefiting in future from having a good reputation is largely underpinned by self interest. Chooser Dependence The chooser dependence of preference helps to illustrate the role of comprehensive description of choice processes and outcomes at culmination. The bases of choice are quite complex, and their rationality cannot be understood from merely focusing on people’s preferences. The influence of chooser dependence on choice is illustrated by Sen (1997: 747): “…….you may prefer mangoes to apples, but refuse to pick the last mango from the fruit basket, and yet be very pleased if someone else were to “force” that last mango on you…….” Inferring from the quotation, Amartya may be glad to have the last mango in the basket if someone else made the choice that resulted into Amartya having the mango. This anticipation that someone else’s choice results into an improvement in Amartya’s welfare is motivated by self interest. He lives with an anticipation that someone else will act in away that will improve or affect his own wellbeing. Social Commitments and Moral Imperatives Amartya may just not think it morally “right” to grab the last mango from the fruit basket, that as Sen (1997) puts it “cutting others out” and such moral sentiments could be implicitly followed or only implicitly obeyed. In this particular instance I don’t think he is necessarily following self interest but as noted could be implicitly obeying moral sentiments about picking fruits which remains a reasoned choice. Direct welfare effects. Amartya’s wellbeing may be affected directly by the process of selection for example by how other people at the dinner party interpret his behaviour—were he to pick the only mango from the fruit basket, or a big sized fruit out of several small ones. In this context, Amartya’s choice behaviour would be influenced by self interest but his selection need to be comprehensively understood in the context of the choice processes and their effects not only the culmination effects of picking or not picking a preferred mango. Here I consider self interest to play a crucial role in his choice act. Menu Dependence Amartya’s choice may be dependent on the set of available options so that: “if the set of available options is expanded ….containing two mangoes and two apples, person i may have no difficulty in choosing a mango since that still leaves the next person with a choice over the two fruits” (Sen 1997:752). Under this basis, questions of self interest versus commitment or reputation need not arise. Amartya chooses merely because the menu allows a set of alternatives from which he can choose and he needs not to suffer any choice constraints. However there are other reasons for menu dependence such as the value and autonomy of decisions. There may be instances that even when Amartya has a set of options, he may be constrained by the set over which he can “exercise choice”—the freedom he has to actually make the choice. In which case there may be an extra welfare bonus in being so free to choose. Amartya therefore may not primarily choose so as to suit himself (self interest) but may choose because of an exogenous factor—one of whether he feels free or not to choose a piece of fruit he likes. The level of knowledge Amartya has about the fruit menu might be another basis for his selection. If say it is announced that several rounds of fruit baskets will be served, Amartya may pick an apple instead of a mango in anticipation that another set of fruits will be passed around and then he will then pick a mango. Under such a case this has little to do with self interest, it is largely about having or not having the relevant information that determines Amartya’s selection. In other words, the role of self interest in choice selection here is secondary while that of knowledge about the menu is salient. As Sen argues: “………….when the option set (or the menu) S is given, the nature of the menu can influence the ranking of the alternatives……….and this relationship is of immediate relevance in understanding and predicting choice behaviour (Sen 1997: 755).
The influence roles and acts of choice have on what is chosen can be strategically significant and one’s choice strategy has to take adequate note of the dependency of people’s actual choice on their exact roles. One consequence of this is that one can serve self interest better through behaving more “nobly” and by handing over the choice to others. Strategic nobility is illustrated with “the fruit passing game” (See Sen 1997: 762). Drawing implications from this game, Amartya at a dinner party may not follow his preference but make choices basing on norms or rules of behaviour related to choice roles “that exclude the picking of the last fruit except after the other person has already got a fruit” (Sen 1997:762). He may opt for options that are permissible though not preferred. We would expect him to behave in this way if he anticipates that other people picking the fruit at the dinner party will be “responsible enough” and follow the norms. This choice act does not exclude self interest, but it is clear that Amartya would rather follow established norms first and only anticipate that if other people reciprocate and thus follow the rules too, he would still be able to satisfy his self interest—and be the one to pick the last piece of fruit or the only mango out of a set of several apples. Relationship between Choice, preference and self-interest? There is a relationship but not a clear or consistent one. There are instances where one’s preference is directly related to one’s self interest and a choice made is based on this consistency. But there are only a few of such instances. In some respects the choice act follows the self interest, but not one’s preference for instance in instances where one is acting out of sympathy for others. When making a choice based on sympathy, one’s intention is not to maximise his direct welfare since he does not choose his “preferred” alternative, but is interested in enhancing the welfare of other people which indirectly culminates in enhancement of the individual’s own welfare. There are also cases when the three are not related. For instance where one is acting out of duty, or norms or rules of behaviour what they choose may not be what is preferred or may not even be out of their self interest. Therefore our preferences are not menu independent as is standardly assumed in the traditional theory of preference and choice. It is important to recognise that people often choose alternatives that are permissible thou not preferred. In my view the definition of preference needs to be adjusted to incorporate behavioural constraints of “norms” and “rules”. Taken in the traditional way, preference may fail not only to reflect acts sympathy though based on self interest as argued above, but more importantly fails to account for choices made on the principle of duty, those based on “norms” and “rules” of behaviour, commitment among others. Bibliography Sen, A. 1999. Development as freedom. Oxford University Press. Sen, A. 1997. “Maximisation and the act of choice.” Econometrica, Vol.65, No. 4. pp 745-779. Essay 4 CHOICE FRUITS AND FRUITY CHOICES Using a hypothetical example of Prof. Sense’s fruit choice, to catalogue reasonable selection bases, to determine the relation between choice, preference and self-interest In this essay, I use a hypothetical example of a certain Prof. Amartya Sense’s fruit choice, to catalogue reasonable selection bases, including self-interest, which may explain human choice. Later, I discuss the relation between choice, preference and self-interest.59 (I) Fruit choice and fruity choices The example here illustrates Prof. Sense’s choices at various dinner parties, in two settings. The first is Shantiniketan, where Sense spent his childhood. The other is Trinity College, where Sense served as Master. These two different settings are used to highlight: the importance of an individual’s social position and how it may influence their choice; and, the fact that preference orderings may change over time. Choice tables below provide information about how Sense chooses from a fruit basket passed around during dinner. ‘Preference orderings’ reveal the order of Sense’s fruit preference: M (Mango), B (Banana), O (Other fruits), P (PASS). Pass is always an option in the bundle, though this is not explicitly stated. ‘Setting’ indicates the backdrop of the dinner party Sense is attending (i.e. in Shantiniketan and Trinity College). ‘Bundle’ indicates the number and kind of fruits in the basket. ‘Position’ indicates Sense’s seat on the table, by his turn to receive the fruit basket. ‘Choice’ indicates the actual choice made. In the example, only one fruit can be chosen. Hoarding is not an option. In setting 1, once a choice is made (including ‘pass’) that choice is final. In setting 2, after the first pass, Sense is allowed to choose again, and the latter decision is final. Table 1: Dinner parties in Shantiniketan Preference order: M>B>O>PASS
Table 2: Dinner parties in Trinity College60 Preference order: B>O>M>PASS61
Sense gone bananas? Given Sense’s choices above, based on assigned preference orderings, it would be impossible for a revealed preference approach (RPA) theorist to qualify Sense as a rational economic person (REP). Because, according to RPA, a rational economic person would make a choice based on their preference orderings, which optimise their personal welfare (calculated on the basis of self-interest). Sense’s choices above would make the RPA theorist conclude that they were observing a person ‘who had gone bananas’ – someone mad to the bone – and not one of their most distinguished brethren (Sense is a Nobel prize winning economist). The RPA theorist can be shown that he was indeed mistaken when he pronounced judgement on Sense, as “having gone bananas,” if one goes beyond self-interest optimisation as the sole criterion for rationality. The following tables provide various reasonable selection bases, including self-interest, to explain Sense’s choices above. It is important to note that none of Sense’s choices are purely irrational (in the sense of non-reasoned, or due to ignorance). Table 1.2: Sense’s selection bases (Shantiniketan)
Table 2.2: Sense's selection bases (Trinity College)
The various selection bases – self-interest, commitment, sympathy, strategic nobility, guilt – listed above, document that human choice can be motivated by several reasons; reasons, which include self-interest. In the example above, one can clearly see that choice depends on the context: the rules/norms of the environment under which choice is exercised; the options available in the bundle (menu); the consideration about how is the choice made and who is making the choice (see strategic nobility above); all these factors matter. The question one needs to answer now is whether the inclusion of selection bases other than self-interest in mainstream economic theory are justified – i.e. does such an inclusion increase the explanatory and predictive power of economic theory?67 Or, are RPA theorists justified in viewing human choice as motivated mostly by self-interest/personal welfare optimisation revealed by preferences? (II) Strategic nobility, sympathy, and commitment: why all this matters… Do we choose what we prefer? The work of another Nobel prize winning economist (a real one, in this case), Prof. Amartya Sen, may help us answer this question in light of the example above. The selection bases of strategic nobility and sympathy show that individuals may optimise their welfare without making a choice based on their preference orderings. In the case of strategic nobility, the initial choice is deliberately not the one that is most preferred according to preference orderings. And yet, because of prevailing rules and norms, one may end up optimising one’s welfare and self-interest in the end.68 Similarly, in the case of sympathy, one may actually optimise welfare by choosing their least favoured preference, according to the preference orderings scheme.69 Sympathy considerations make the final outcome (despite the non-preferred choice), such that one is most well-off. Through sympathy and strategic nobility, Sen shows that there are selection bases that may be able to optimise personal welfare – i.e. they are ‘rational’ choices in the RPA sense of ‘rational’ – and yet these bases may not be the ones most preferred. In other words, what one chooses may not be what one prefers. Despite this one might increase one’s welfare! Sen acknowledges that both sympathy and strategic nobility can be incorporated under RPA because they still end up optimising welfare. His most potent criticism of RPA is based on the concept of commitment. Sen shows that via commitment individuals may knowingly choose an outcome, or expected outcome, which does not optimise their welfare. Behaviour based on commitment, thus, robs preference of its most useful function: as a relation between choice and self-interest. Observing one’s choice will no longer yield neat preference orderings, which correspond to one’s welfare. Individual choice, like Sense’s in the example above, may not optimise individual welfare, nor is choice always based on preference orderings. Sen questions the prudence of using preference relations to explain human choice on the sole basis of welfare optimisation. If committed choice is based on considerations other than welfare optimisation, and we know this to be the case not only via hypothetical examples, but with real life cases, like worker motivation in Japan,70 then are economists justified in continuing their use of REP? The answer weakens the whole basis for achieving Pareto-optimality based on unlimited competition. Sense’s seemingly fruity choices for choice fruits appear, in light of Sen’s work, to have shaken the very foundations of RPA. Perhaps, the relation between preference, choice and self-interest may not be as robust and secure as RPA theorists think it is. It may indeed be more prudent to include more selection bases in economic analysis, and make REP a reasonable person, in addition to being purely rational.71 How one will achieve this, and what defences RPA theorists may come up with for REP,72 one cannot determine here. One thing is certain: the debate regarding the relation between choice, preference and self-interest, and the viability of REP, with or without commitment, is not going to RIP (rest in peace) for a long while.73 And, like many critical debates in economics, it promises to bear substantive fruit on future research and practices within the discipline. Bibliography Hahn, Frank. (1991). “Benevolence.” in Meeks, J.G.M. (ed.) Thoughtful Economic Man. Cambridge: Cambridge University Press. p 7-11. Meeks, J.G.M. (1991). (ed.) Thoughtful Economic Man. Cambridge: Cambridge University Press. p 160. Sen, Amartya. (1973). “Behaviour and the Concept of Preference.” Economica. Vol. 40. No. 159. (August, 1973). p 241- 259. Sen, Amartya. (1977). “Rational Fools: A Critique of the Behavioral Foundations of Economic Theory.” Philosophy and Public Affairs. Vol. 6. No. 4. p 317-344. Sen, Amartya. (1991). “Beneconfusion.” in Meeks, J.G.M (ed.) Thoughtful Economic Man. Cambridge: Cambridge University Press. p 12-16. Sen, Amartya. (1994). “The Formulation of Rational Choice.” The American Economic Review. Vol. 84. No. 2. p 385-390. Sen, Amartya. (1997). “Maximization and the Act of Choice.” Econometrica. Vol. 65. No. 4. p 745-779. Sen, Amartya. (1999). Development as Freedom. Oxford: Oxford University Press. p 366. VI. Irrationality and rationality – Keynes ‘We should not conclude from [my analysis of the state of long-term expectation] that everything depends on waves of irrational psychology’ (Keynes). Why not? Is the balance Keynes seeks to strike between powerful irrational factors and the endeavours of ‘our rational selves’ an uneasy one? Essay 1 THE ECONOMIC CONSEQUENCES OF MR. KEYNES: DOES RATIONALITY EQUAL ABSURDITY, DUE TO UNCERTAINTY, IN THE DISMAL SCIENCE? (I) Why bother about uncertainty in economics?74 My task, in this essay, is to determine whether the balance Keynes tries to strike between irrational factors and the endeavours of ‘our rational selves’ is tenable, given the fact of uncertainty about the future and the need for action.75 In order to make this determination, I need to first illustrate why, according to Keynes, uncertainty matters in economics. After all, why should we bother about uncertainty when prominent economists before Keynes seemed to pay little attention to it? The answer, I believe, lies in the end that Keynes sought.76 Keynes seems to have devoted most, if not all, his work to solving the economic problem, as it related to absolute human needs.77 The rate of economic development – economic progress – would establish how soon the solution to the problem of basic human needs could be brought about.78 This rate of economic development depends on one basic economic factor: how fast capital accumulation takes place.79 Because capital goods can help increase productivity of scarce resources to satiate absolute human needs – which are, according to Keynes, limited – and best reduce the amount of relative human needs80 – which are, by nature, unlimited. Capital accumulation depends on long-term investments. Long-term investment decisions are, by definition, wrought by future expectations. And, the future is uncertain.81 Thus, if the economic problem of absolute human needs is to be solved at the earliest possible, it is essential that the ill-effects of uncertainty be mitigated and its benefits compounded. So that one can attain the optimum level of long-term investment needed to ensure appropriate amounts of capital accumulation.82 That is why we need to bother about uncertainty. (II) Keynes’ keen observations Given the fact of uncertainty and the need for human action – Keynes implicitly discounts the option of not doing anything at all in the face of uncertainty as unviable and unworthy – Keynes arrives at a very different conception of homo economicus83 and the workings of the economy. Gone is the characterisation of homo economicus as a perfectly calculative, profit maximising agent, in the short and long term. While in the short-run, one may be able to behave in this manner, how can one maximise profits in the long-run, Keynes asks, when it is impossible to determine scientifically what the future will entail? When there is no scale of quantification, what is one going to maximise? But, is it not fair to ask whether the future is actually uncertain to the degree Keynes assumes it to be? Or is it merely risky? Can we not attach numerical probabilities to the price of a building or that of a ton of copper thirty years hence? Keynes proves the uncertainty inherent in the future by pointing to the preposterous – according to Classical theory84 – behaviour of individuals who hoard their wealth in money. If there were no uncertainty about the future, why would anyone save their wealth in “barren” money, when “every other form of storing wealth yields some interest or profit”?85 The only reasonable explanation is that uncertainty creates the conditions whereby one cannot know with sound confidence what the outcome of one’s investments in loans or capital assets might be, and the existing rate of interest and marginal efficiency of capital do not compensate for this uncertainty. One begins to discern a measure of in-confidence in homo economicus. Keynes’ characterisation of the rational economic agent seems to reflect this less confident economic man. His homo economicus is not a confident, calculative maximiser, but one who develops face-saving techniques, which serve as a compromise between uncertainty and human action, to resolve the economic problem of absolute needs in the long-run. These techniques try to discount uncertainty in human affairs and base calculations for the future on currently available information. Keynes tabulates them as follows:
From a calculative, profit maximising agent, who had complete information of all his affairs, homo economicus seems to now adhere (paradoxically) to the dictum: eventus stultorum magister! Perhaps, economic man is not rational after all. But Keynes does not go that far. For him, given the facts of the situation and the limits to our knowledge of the future, it seems okay to invest substantial degrees of rational beliefs in long-term investment decisions, on the basis of these techniques.86 The “flimsy foundation” for these techniques, however, makes long-term investment susceptible to “sudden and violent changes.”87 What is worse is that not only does one have to calculate the prospective yield of capital assets on the basis of how well current prices and output factor in uncertainty, but one also needs to take into account how others view uncertainty as well (given technique 3): uncertainty about the future, plus how others perceive this uncertainty about the future, both have to be taken into account while making a long-term investment decision. When one accords more importance to the latter aspect – how others perceive uncertainty – and tries to make profits solely on that basis, one engages in speculation, according to Keynes.88 He opposes speculation to enterprise, which tries to calculate the prospective yield of capital assets.89 If one is to mitigate the ill-effects of uncertainty, then one needs to have more enterprise and less speculation; Keynes assumes that the former will help attain the goal of resolving the fundamental economic problem of satisfying absolute human needs sooner, and more effectively, than the latter.90 In order to undertake a long-term investment decision, however, one needs to engage one’s “animal spirits” because mathematical calculations will not yield such decisions, due to uncertainty.91 Thus, if one tries to counter speculative activity, one risks countering enterprising activity as well, since both rely on animal spirits; everyone may end up hoarding their wealth in money and deprive all investment – for capital and consumption expenditure – which would be counterproductive to the development of the economy as a whole. So, given the face-saving techniques, with flimsy foundations, of rational economic man, and the precarious nature of enterprising and speculative activity, how does one ensure steady long-term investments for capital accumulation? For Keynes the answer lies in the State’s capacity to generate such investment, along-side that of individual entrepreneurs and speculators.92 The State would provide stability of effective demand93 and thereby lend more stability to the whole process of capital accumulation. (III) Ideas of defunct economists: dangerous for good and evil?94 Having “lent [Keynes] our ears” it is time to “censure [him] in our wisdom.”95 One needs to evaluate whether the balance that Keynes strikes between rationality and irrationality is tenable. The first question that arises is how justified is the basis for defining uncertainty and probability as Keynes does? Specifically, who is to determine the objective probability relation once the given facts have been determined?96 What may be a matter of probability for Mr. Keynes may be a matter of uncertainty for Mr. Churchill, who is right? Also, do superior skills in identifying objective probability relations because of higher subjective skills and education, entitle a person to have more voice in economic, and even political, decisions? After all, if the goal is to secure maximum capital accumulation, or undertake the best political decisions, at the earliest possible, why not discriminate among citizens – in terms of access to political office, economic and financial positions – on the basis of skills in probability determination? Is it not rational to do so, given that individuals with such skills are better able to determine the valid degree of knowledge that authorises general rational belief given the facts of the situation? While the first question raises issues of considerable concern, both practical – is democratic politics a viable option? – and theoretical – how far can one stretch the definition of rationality? – the following concern about the “face-saving” techniques of rational, economic men seems even more troubling. If most significant decisions about economic affairs are going to be based on conventional judgements, since perfect certainty is seldom possible, how can one ensure that these judgements will be reasonable and legitimate?97 Slavery was supported by conventional judgement in economic affairs as a rational mode of production. Does that mean that it was legitimate and reasonable? Keynes might answer that new relevant evidence increased the weight of the argument98 that led to the weakening of the probability of rational belief in slavery, and that changed conventional judgements about it. But one is still left asking how long does it take to recognise these changes in relevant evidence; who recognises the changes in the weight of arguments; how does the recognition lead to changes in conventional judgements? Isn’t the flimsy foundation for rationality under uncertainty absurd now: is it not no foundation at all? The compromise between rationality and irrationality seems to reduce itself to a farce and either one must let rationality in the Classical sense prevail or have no rationality at all.99 If one accepts the security of Keynes’ compromise, one needs to evaluate his prescriptions to create a better version of the compromise with enterprise superseding speculation. As Keynes was aware, this is not an easy task: destroying the animal spirits of one may destroy those of the other. But even more critical for us is the assumption that Keynes makes. Without any proof, he seems to be stating that uncertainty regarding prospective yield of capital assets (which enterprise tries to overcome), is better than uncertainty regarding the prospective yield plus uncertainty regarding how others view this yield (which speculation tries to take advantage of). Yet, I cannot accept this at face value: there may not be an additive relation of uncertainty in the latter; speculation may actually be able reduce the ill-effects of uncertainty and attain a better rate of capital accumulation than enterprise could, unless proven otherwise. One also has no reason, a priori, to believe that the State will actually ensure stable effective demand for capital accumulation in socially beneficial projects.100 Private foundations may be able to do this as effectively, if not more, because of their functional specialisation in most cases (as opposed to the States’ general concerns). Despite all these reservations, I do not think that Keynes’ compromise actually fails; nor do I believe that he is a defunct economist whose ideas are dangerous for good or evil. Rather it seems that his ideas are powerful for progressive change. Why? Because of three main reasons. First, one cannot be blind to the fact that there is no certainty in the long-term. Going back to the idea of homo economicus as sketched by the Classical economists would do disservice to the discipline of economics, in terms of its predictive and explanatory powers for the ‘real’ world.101 Keynes’ model of compromise between rational and irrational factors, though not perfect, still provides a plausible alternative to the Classical homo economicus. Second, we are now endowed with levels of abundance in wealth and prosperity, whereby we can actually try to provide higher education to all human beings, (if this wealth is distributed in the conducive manner), to enable them to process information in a sophisticated manner. If information access is democratised and universal higher education made a reality, then one can reasonably expect a large majority of the population to discern objective probability relations, making conventional judgements a close approximate to possible direct knowledge, or the best possible indirect knowledge.102 And finally, the key lesson of Keynes’ approach is that one needs to be cautious in one’s decisions about future endeavours. Individuals under Classical economics may have been less cautious because they seemed certain of their infallibility, which is a gullible notion – certain or not. In the field of economic development Keynes’ moral recommendation that a “smaller but relatively certain good is better than a greater but proportionately more uncertain good” has proved itself.103 The success of micro-enterprises is in marked contrast to the disasters unleashed by huge projects like dams. There are several other similar instances in development economics. Realising Keynes’ precept regarding moral risk earlier may have actualised his prophecy of solving the fundamental economic problem, of absolute human needs, for the entire human race by now.104 We still have sometime left though, so let me not talk in the past tense; rather let us have hope for the future. (IV) Keynes’ legacy: lending appeal, not absurdity, to the dismal science The economic consequence of Mr. Keynes then – his legacy to the discipline – is not one where the dismal science is rendered absurd by considerations of uncertainty. It is rather one characterised by the possibility of creating a better science of economics, where economists do not gloss over difficulties but are courageous enough to take real challenges head on – as Keynes illustrated by example. His ‘general theory’ tried to calculate how best to arrive at a full employment of resources given uncertainty. It was ambitious, – how else can one characterise an economic theory that makes all substantive economics before it, its ‘special case’? – and motivated by good: end the fundamental economic problem of absolute human needs. Keynes’ compromise between rational and irrational factors tried to address the philosophic problem of how best to accommodate change, which is inherent in the human condition,105 with stability. He did not seek to transform human nature, but rather sought to better the human condition, through that compromise. In doing so, he gave us the model of a cautious human individual, who – given uncertainty about the future and limited information – is moderate and humble in her outlook; this outlook is welcome in an age characterised by hubris and recklessness, or worse, sheer mediocrity and cowardice. The humble and moderate outlook presented by Keynes, helps open the possibility of art in economics; it liberates the dismal science from the shackles of iron laws. This is not to say that everything is up for grabs. But certain possibilities remain, which are not subject to statistical laws, or mathematical equations: these are the possibilities of exercising the faculty of human judgement which is artful; possibilities that enable an economist to “shoot for the moon.”106 A contemporary distinguished practitioner of economics puts it best: For me, probabilistic thinking has long been a highly conscious process. I imagine the mind as a virtual legal pad, with the factors involved in a decision gathered, weighed, and totalled up. To describe probabilistic thinking this way does not, however, mean that it can be reduced to a mathematical formula, with the best decision jumping automatically off a legal pad. Sound decisions are based on identifying relevant variables and attaching probabilities to each of them. That’s an analytic process that also involves subjective judgements. The ultimate decision then reflects all of this input but also instinct, experience, and ‘feel’” (Rubin, 2003, p xi). Keynes would, most probably, agree. Bibliography - Arendt, H. (1998). The Human Condition. (Chicago: University of Chicago Press). p 349. - Coddington, A. (1982). “Deficient foresight: A Troublesome Theme in Keynesian Economics” in The American Economic Review. Vol 72. No 3. (June 1982). p 480-487. - Keynes, J.M. (1921). A Treatise on Probability. in Braithwaite, R.B. (ed.) The Collected Writings of John Maynard Keynes Volume VIII. (MacMillan Press: London,1973). p 507 - Keynes, J.M. (1931). “Economic Possibilities for our Grandchildren” in Essays in Persuasion. (MacMillan & Co: London). p 358-374. - Keynes, J.M. (1936). The General Theory of Employment, Interest and Money. (Cambridge University Press: Cambridge). Also available at: http://www.marxists.org/reference/subject/economics/keynes/general-theory/ - Keynes, J.M. (1937). “The General Theory of Employment” in The Quarterly Journal of Economics. Vol 51. No 2. (February 1937). p 209-232. - Meeks, J.G. (1991). “Keynes on the rationality of decision procedures under uncertainty: the investment decision” in Meeks, J.G. (ed.) Thoughtful Economic Man: Essays on rationality, moral rules and benevolence. (Cambridge University Press: Cambridge). p 126-158. - Robinson, J. (1973). “What has become of the Keynesian Revolution?” in Robinson J. (ed.) After Keynes. (Basil Blackwell: Oxford). p 1-10. - Rubin, R. and Weisberg J. (2003). In an Uncertain World. (Thomson Learning: London). p 247. - Runde, J. (1990). “Keynesian uncertainty and the weight of arguments.” in Economics and Philosophy. Vol 6. No 2. (October 1990). p 275-292. - Skidelsky, R. (2004). John Maynard Keynes 1883-1946: Economist, Philosopher, Statesman. (Pan: London). p 1056. - Weintraub, E.R. (1975). “Uncertainty and the Keynesian Revolution” in History of Political Economy. Vol 7. No 4. (Winter 1975). p 530-548. VII. Happiness ‘Happiness...can be measured’ (Layard). How convincing is Layard’s recent argument that advances in scientific measurement techniques now defeat the claim that problems in assessing happiness mean it cannot function effectively as the social maximand? Essay 1 (by Maryam Tanwir) Yüklə 402,29 Kb. Dostları ilə paylaş:
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