Keynes, Uncertainty and the Global Economy

Keynes, Uncertainty and the Global Economy

Beyond Keynes, Volume Two

Edited by Shelia C. Dow

The revival of interest in Keynesian economics since the late 1980s reinstates the importance of Keynes’s contribution to economic theory and policy. This is the second of two volumes in which authoritative contributions are presented by an outstanding group of international experts to celebrate Keynesian economics, and to review and further the developments of post Keynesian economics of recent years.

Chapter 1: The division and coordination of knowledge

Brian J. Loasby

Subjects: economics and finance, post-keynesian economics


Brian J. Loasby I THE INSUFFICIENCY OF REASON ‘The economic analyst . . . assumes that men pursue their interests by applying reason to their circumstances. And he does not ask how they know what those circumstances are.’ George Shackle (1972, Preface) here raises a fundamental issue, not only of economic analysis, but of human behaviour. Keynes, having examined in his Treatise on Probability the logical connections between supposedly established knowledge and the further knowledge that might be inferred from it, later emphasized ‘the extreme precariousness of the basis of the knowledge on which our estimates of prospective yield have to be made’ (Keynes, GT: 149); and Hayek (1937: 45), speaking to the London Economic Club a few months after the publication of the General Theory, declared that ‘if we want to make the assertion that under certain conditions people will approach that state [of equilibrium] we must explain by what process they will acquire the necessary knowledge’. Hayek (1931) had already sought to explain the business cycle by a failure to acquire a crucial piece of knowledge, and in doing so had anticipated two key features of Keynes’s theory (though in other important respects the theories were very different). First, both Hayek and Keynes identified the locus of coordination failure in a disparity between investment and full-employment savings, though Hayek feared an excess of investment and Keynes an insufficiency; and second, the reason why this disparity is not eliminated by the price mechanism is that the relevant price – the...

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