Wednesday, July 31, 2013

Post Keynesians and Degrees of Uncertainty

M. E. Brady contends that Post Keynesians misunderstand Keynes’s conception 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
If this is supposed to be interpreted as the assertion that no Post Keynesian has ever recognised grades/degrees of uncertainty, then it is plainly false.

Some straightforward evidence:
(1) Dow (1995) is an explicit recognition of the idea that Keynesian uncertainty comes in degrees, on the basis of the Treatise on Probability and Keynes’s concept of the weight of evidence. Dow (1995: 119–120) notes that the weight of evidence “allows understanding of uncertainty as a relative concept,” and that this idea of relative uncertainties was an important, but neglected, aspect of Keynes’s famous 1937 article “The General Theory of Employment” (Keynes 1937). See also Dow (1994).

(2) Here is Jesper Jespersen:
“Uncertainty is caused by lack of information. Therefore uncertainty might have different intensities or ‘stats of confidence’. You may feel(!) more or less uncertain, but except for rare cases all individual activities are characterized by (different degrees of) uncertainty, because one cannot know nor estimate the exact outcome. Hence, expectations are uncertain due to this inherent lack of information (and a constantly changing environment).” (Jespersen 2009: 8).
(3) Here is Lars Syll:
“To Keynes expectations are a question of weighing probabilities by ‘degrees of belief,’ beliefs that often have preciously little to do with the kind of stochastic probabilistic calculations made by the rational agents as modeled by ‘modern’ social sciences. Although (I think) I agree with Sheila that Keynesian uncertainty can come in different degrees or grades, I wouldn’t overemphasis the reach of that kind of differentiated uncertainty concept. Institutions, animal spirits, conventions, history, social norms and models MAY help us decide and act – but much of the time we ‘simply do not know’ because of the way the world works.”
I am unsure whether M. Crocco self-identifies as a Post Keynesian, but Crocco (2002) and (2000) make it clear that he too understands that Keynesian uncertainty comes in degrees.

Clearly, degrees or grades of uncertainty are recognised by some Post Keynesians, and I would concur that this is the correct way to see uncertainty: when you have merely epistemic probabilities derived from inductive arguments, and no objective probabilities (either in an a priori or relative frequency sense) can be given, then the probability of an inductive inference also comes with some degree of uncertainty, from low to very high (depending on the particular argument).

When one has no relevant or convincing evidence on which to make an inductive argument, one would face total or radical uncertainty. Exactly when and in what circumstances one does face radical uncertainty, of course, could be a matter of some dispute.

But it is clear that the notion of grades/degrees of uncertainty is the key to understanding this fundamental passage in Keynes’s article “The General Theory of Employment” (1937):
“By ‘uncertain’ knowledge, let me explain, I do not mean merely to distinguish what is known for certain from what is only probable. The game of roulette is not subject, in this sense, to uncertainty; nor is the prospect of a Victory bond being drawn. Or, again, the expectation of life is only slightly uncertain. Even the weather is only moderately uncertain. The sense in which I am using the term is that in which the prospect of a European war is uncertain, or the price of copper and the rate of interest twenty years hence, or the obsolescence of a new invention, or the position of private wealthowners in the social system in 1970. About these matters there is no scientific basis on which to form any calculable probability whatever. We simply do not know.” (Keynes 1937: 213–214).
The outcome in a (fair) game of roulette can be calculated in an objective sense though a priori probabilities, so it is clear Keynes is excluding mathematical or physical probabilities here.

But then he mentions three examples where he seems to be talking about degrees of uncertainty:
(1) the prospect of a Victory bond being drawn;

(2) the expectation of life (only slightly uncertain);

(3) the weather (only moderately uncertain).
I am not quite sure what Keynes meant by “the expectation of life,” but these examples seem generally to be epistemic probabilities, with varying degrees of (non-objective) probability and uncertainty attached to them.

Then, finally, are Keynes’s examples of “matters [sc. where] there is no scientific basis on which to form any calculable probability whatever”:
(1) the prospect of a European war (considered, we should remember, in 1937!)

(2) the price of copper and the rate of interest twenty years hence;

(3) the obsolescence of a new invention;

(4) the position of private wealthowners in the social system in 1970.
These would appear to be examples of radical uncertainty in Keynes’s view.

Crocco, M. 2000. “The Future’s Unknowability: Keynes’s Probability, Probable Knowledge and the Decision to Innovate,” in F. Louçã and M. Perlman (eds.), Is Economics an Evolutionary Science? Edward Elgar, Cheltenham.

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.

Keynes, J. M. 1937. “The General Theory of Employment,” Quarterly Journal of Economics 51: 209–223.


  1. MEB is not representing the PKs fairly. And his more grandiose claims are nonsense. A good scholar that fell into the pit of his own hubris.

    1. Out of curiosity, did genuinely you ever think that Dr. Michael Emmett Brady was a good scholar, or no?

  2. The MEB inovation is to try demonstrate the economy is much more preditable than the PK consensus is stating.