Tuesday, July 30, 2013

M. E. Brady’s Critique of Post Keynesianism

As far as I can see the major criticisms are these:
(1) Post Keynesians (and philosophers of probability, mathematicians and economists generally) have not understood Keynes’s Treatise on Probability properly, and in particular his idea of relegating the frequentist interpretation of probability to a highly limited domain, and that non-objective probabilities (in the sense of non-a priori probabilities or non-relative frequency probabilities) can nevertheless be mathematically represented with imprecise, interval estimates (apparently called “approximation” by Keynes), the first explicit such interval estimate, lower-upper bound model of probability, developed from George Boole’s calculus in The Laws of Thought (1854).

This forms the basis of Keynes’s decision-making theory, with mathematics behind it, superior to the Ramsey/Savage/neoclassical EUT and consistent with Daniel Ellsberg’s decision making theory.

(2) Brady contends that Post Keynesians misunderstand Keynes’s conception of uncertainty, and do not recognise grades/degrees of uncertainty:
“Paul Davidson assumes that Keynes’s and Shackle’s views are the same. The Post Keynesians DO NOT accept the concept of uncertainty coming in different grades or gradations. They fall back on Shackle’s own words … – Uncertainty is the opposite of certainty. … There is nothing in between certainty and uncertainty. This, of course, leads to complete nihilism. The Post Keynesian school is doomed intellectually because it does not have a solid foundation to deal with uncertainty as a range. Radical uncertainty only has import in decisions involving innovation/long run capital investment. Any attempt to put it at the center of decision making leads to intellectual chaos.”
Michael Emmett Brady, April 21, 2008
(3) the charge that Post Keynesians have mistakenly held that Keynes had no or little formal mathematical analysis in the General Theory or that Keynes had “no microeconomic foundation in the ... General Theory to support his D-Z model of Effective Demand because he had not taken the 20 minutes necessary to study the theory of value.” According to this view, the theory of effective demand in the General Theory is “completely worked out in detail in chapters 20 and 21 using the D-Z model.”

That is, Brady contends that Paul Davidson’s interpretation and version of Keynes’s D-Z model is wrong, and that Post Keynesians have not properly understood Chapters 20 and 21 of the General Theory and that Keynes had a sophisticated mathematical model in those chapters.
While charge (1) is probably true, I think it is clear that charge (2) is false: there are Post Keynesians who do recognise degrees of uncertainty, such as, for example, Dow (1994 and 1995), Jespersen (2009: 8), Lars Syll, and (if he self-identifies as a Post Keynesian) Crocco (2002).

But I would like to see someone respond to charge (3).

Crocco, M. 2002. “The Concept of Degrees of Uncertainty in Keynes, Shackle, and Davidson,” Nova Economia 12.2: 11–28.

Dow, Sheila C. 1994. “Uncertainty,” in Philip Arestis and Malcolm Sawyer (eds.), The Elgar Companion to Radical Political Economy. Edward Elgar, Aldershot. 434–438.

Dow, Sheila C. 1995. “Uncertainty about Uncertainty,” in S. C. Dow and J. Hillard (eds.). Keynes, Knowledge and Uncertainty. Edward Elgar, Aldershot. 117–127.

Jespersen, Jesper. 2009. “Post-Keynesian Economics: Uncertainty, Effective Demand & (Un)sustainable Development,” Paper, Dijon-conference, Dijon, 10–12 December 2009.


  1. (1) Don't know. Might be true. But nothing to do with Post-Keynesianism. This is a history of thought issue.

    (2) Not true. The people Brady focuses on -- Davidson and Shackle -- use different terminology to discuss decision-making. This is more coherent because they recognise that terms like "partially ergodic" are highly misleading.


    (3) This is Brady's big nonsense claim. The idea that if you read it closely enough you'll find microfoundations in the General Theory.

    The idea here is that the decision-making theory in the ToP can be used as microfoundations. This is complete garbage. You cannot understand microeconomic behavior using Brady's interpretation of Keynes' decision-making theory. If Brady can then he should be able to make concrete calls on financial markets. If not, he is talking rubbish.

    On that front, I still have no response from him to my challenge (although someone else responded but misinterpreted the challenge again indicating to me that no one is really clear on what implications Brady's so-called discoveries have).


  2. Dear Mr.Philip Pilkington,

    If you add MEB thesis then you can conclude that is possible to set-up a system that can beat the stock market over a long term period.

    I use a system that is based on MEB thesis, and has beaten the stock market over a long term period.

    The stock market is the S&P500 index.

    1. But as we discussed you cannot set up a formula for making decisions that, for example, I can pick up and use. What you're talking about is relying on your own judgement to make decisions. That's no good because we cannot test what effects MEB's ideas are having and what effects your own savvy is having.

      In order to test MEB's ideas we need a series of equations that anyone can pick up and apply to decisions in real time. In lieu of this, I don't believe that MEB has found what he has claimed to find and I believe he is vastly exaggerating his claims.

  3. It is not a computer fórmula because it relies on intervals of probabilities, but it is a system for decision making.

    Also it is based on the idea that the economie is absent for strong exogenous shocks , predictable.

    1. Give me a concrete example of how it applied then. And run through the math.

    2. I told you already that the thesis (the economy is partially ergodic) is used to beat the stock market over many years.

      You can look at the economy of the US and see that is not very unstable.

      Sorry but I cannot give you more details, only the buy and sell orders to confirm if the system works.

      In any case the PK idea that the economy is very unpredictable is not based in "hard" science , as far as I know .

    3. So basically you're saying that what you're doing is impossible to explain? You're presenting me with a black box and your own stock market calls and I'm supposed to believe that MEB's theory is driving these calls?

      Yeah, I'm not going to buy that. And I don't think any other critical thinking person will either.

    4. Yes, the theory behind the system (black box) is based on the partial predictably, intervals of probability, of the economy and of the stock market, as stated by MEB.

    5. But you cannot actually articulate how it is applied?

      And you think that this is a reasonable position to take and that we should all just believe what you're saying?

  4. I say the MEB papers are well articulate and promote a very reasonable position regarding the partial predictably of the economy.

    I don't see that the Post Keynesian "consensus" idea of strong uncertainty in the economy , in this case the USA economy, is more articulate and reasonable.

    What MEB gave to us is a theoretical framework that goes back to Keynes , to something that was just intuition.