Economists From England

"Following the financial crisis of September 2008 when the American investment bank Lehman Brothers collapsed, threatening to engulf the entire banking system, the British economist John Maynard Keynes returned to center stage. In the popular press and in the writings of many economists, Keynes featured prominently as governments around the world urgently sought ways to avoid economic collapse. (...) After only a brief delay, critics of Keynes’s ideas also began to appear; but the emergence of such critics only served to emphasize the fact of his return, for only a few years earlier Keynes’s name would not even have appeared in public debate about economic policy: his ideas were seen as having so little relevance that it did not even seem necessary to mention his name when discussing the performance of the economy."

"In the years after 1936, whilst Hayek was working on The Pure Theory of Capital, most economists were convinced by Keynes, whose theory had an elegance and simplicity that Hayek’s did not. Keynes’ theory lacked Hayek’s theoretical rigor in that it was not based on equilibrium (on individual rationality), and there were places in the argument where Keynes relied on loose, informal arguments, preferring to put his trust in intuition rather than formal theory. Keynesians did not solve the problems with capital theory that Hayek had identified: they just bypassed or ignored them. According to Hayek’s methodological criteria, Keynes’ theory was decidedly inferior. Against this, Keynes’ theory provided opportunities for mathematical and statistical analysis that Hayek’s did not. Indeed, though Hayek paid some attention to data, he did so only minimally: he certainly made no attempt to test his theory against statistical data. The choice of Keynesian theory was, at least in part, a methodological one."

"As the title of his 1941 book indicates, the theory of capital lay at the heart of his theory of the cycle. The reason is that he attributes the cycle not to changes in aggregate demand, or even to changes in the quantity of capital, but to changes in the structure of production and hence the structure of the capital stock. In this, his theory was highly unusual: one of the reasons for his failure to engage more effectively with Keynes was the latter’s inability to see how the theory of capital could be of any importance for the cycle. Because the theory of capital is so central, and because it is so complex, it needs to be explained carefully. After that, the rest of his theory falls into place comparatively easily."

"Since the 1970s, interest in economic methodology has grown dramatically, to the extent that it is now possible to view methodology as a clearly identifiable sub-discipline within economics."

"Myrdalian ex ante language would have saved the General Theory from describing the flow of investment and the flow of saving as identically, tautologically equal, and within the same discourse, treating their equality as a condition which may, or not, be fulfilled"

"In the Treatise we are shown the bond-market as it exists in real life: a speculative market where a price, with an identity and a momentary stability, can only exist if there are two camps of dealers holding opposite views of the impending movement of bond prices."

"The bond price, and, as an arithmetical and rigid consequence, the interest rate is an inherently restless variable."

"A discipline, a region of the world of thought, should seek to know itself. Like an individual human being, it has received from its origins a stamp of character, a native mode of response to the situations confronting it. Right responses, 'responsibility', will require of the profession as of the individual an insight into the powers and defects of the tool which history has bequeathed to it."

"Tragically, before the proliferation of empirically blind idiot savants, interesting work had been begun by true thinkers, the likes of J. M. Keynes, Friedrich Hayek, and the great Benoit Mandelbrot, all of whom were displaced because they moved economics away from the precision of second-rate physics. Very sad. 'One great underestimated thinker is G.L.S. Shackle, now almost completely obscure, who introduced the notion of "unknowledge"', that is, the unread books in Umberto Eco's library. It is unusual to see Shackle's work mentioned at all, and I had to buy his books from secondhand dealers in London."

"Before the Treatise, the interest- rate was determined by tastes and objective circumstances, by the persuasibility of income-earners to transfer consumption from the present to the future, and the desire of business men to transfer the means of free enterprise from the future to the present, thus altering the productive possibilities and enlarging the prospective income of the society including themselves."

"Whatever form it takes, the possession of the imaginative gift transforms the problem of accounting for human conduct. For now it is not a question of how given needs are satisfied. Deliberative conduct, choice, the prime economic act, depend for their possibility, when they go beyond pure instinctive animal response to stimulus, upon the conceptual power of the human mind. Choice is necessarily amongst thoughts, amongst things imagined."

"There is little point in demanding minor concessions and relaxations of the abstract, timeless general equilibrium. The light it can throw on human affairs is throw by its most austere and formal version. We are not concerned to ask: How could it possibly work? The useful question is: What does its logical structure imply?"

"When we examine this suggestion, we see that it is no more than a formal acknowledgement of a problem, the problem of how (by what institutional arrangement, by what organization of affairs) the equilibrium prices are to be discovered. Repeated trial and error, while the market stands in suspense awaiting the outcome, is not a practical resort. The number of distinct trials, even if confined to discrete steps of price and quantity, would be so immense that the necessary 'market day' would extend beyond human life-times... [The] theoretical ideal applies to mutually isolated days or moments, each to be treated as perfectly self-contained and looking to no yesterday and no tomorrow. But the real market is dealing with goods inherited from yesterday, and in means of production whose products will not be ready till tomorrow. Meanwhile the non-economic circumstances are changing and rendering each successive equilibrium obsolete."

"The nature of the firm is not simply a minimizer of transaction costs, but a kind of protective enclave from the potentially volatile and sometimes destructive, ravaging speculation of a competitive market. In the market the rational calculus depends upon the fragile price conven- tion which can often depend on ‘whim or sentiment or chance’. Habits and traditions within the firm are necessarily more enduring because they embody skills and information which cannot always or easily be codified or made subject to a rational calculus. what the tlrm achieves is an institutionalization of these rules and routines within a durable organizational structure. In consequence they are given some degree of permanence and guarded to some extent from the mood waves of speculation in the market."

"The firm as a relatively durable organizational structure is able to deal with the lack of knowledge about the future fruits of research and development and innovation. Its relative internal stability means that it can carry unquantifiable risks which would be eschewed in the volatility of the market. In particular large firms are able to set up and sustain R&D departments with their own funds. It is widely recognized that atomized, small-scale private enterprise is not well able to make such long-term commitments."

"We shall here define the market as a set of social institutions in which a large number of commodity exchanges of a specific type regularly take place, and to some extent are facilitated and structured by those institutions. Exchange as defined above, involves contractual agreement and the exchange of property rights, and the market consists in part of mechanisms to structure, organize and legitimate these activities. Markets, in short, are organized and institutionalized exchange. Stress is placed on those market institutions, which help to both regulate and establish a consensus over prices and, more generally, to communicate information regarding products, prices, quantities, potential buyers and potential sellers."

"Market exchange requires a combination of both state and customary institutions. For any developed system of commodity exchange there must be a legal system inscribing and protecting rights to individual or corporate property. There must be a body of contract law with criteria for distinguishing between voluntary and involuntary transfers of goods and services, and courts to adjudicate in such matters. However, the evolution of law is not simply a matter of legislative construction; a great deal of law grows out of custom and precedent. Property and contract law are not exceptions. Consequently, the existence of property and exchange is tied up with a number of legal and other institutions, e.g. government, political system, and common societal values."

"Some institutions within the market are associated with exchange and contracts in an elemental sense (such as the legal system and the customs which govern the contract)... These would be present even if a formal market did not exist. Other institutions are specifically to do with the development of a market and the coordination of a large number of exchanges in an organized manner."

"It is because prices are stable, and are perceived by agents to be in equilibrium, that the task facing market institutions is less daunting in this respect. However, market institutions may still have many other functions, such as providing information regarding quality and the location of potential buyers and sellers, and regulating both the product and the entrants to the market. In fact, a crucial function may be more subtle; by ordering trade under the aegis of some institution, the price and quality of the product may be legitimized at its given level. There is a kind of stamp of institutional approval which may contribute in a powerful manner to the emergence of price norms….."

"The use of the term institution has become widespread in the social sciences in recent years, reflecting the growth in institutional economics and the use of the institution concept in several other disciplines, including philosophy, sociology, politics, and geography. The term has a long history of usage in the social sciences, dating back at least to in his Scienza Nuova of 1725. However, even today, there is no unanimity in the definition of this concept. Furthermore, endless disputes over the definitions of key terms such as institution and organization have led some writers to give up matters of definition and to propose getting down somehow to practical matters instead. But it is not possible to carry out any empirical or theoretical analysis of how institutions or organizations work without having some adequate conception of what an institution or an organization is. This paper proposes that those that give up are acting in haste; potentially consensual definitions of these terms are possible, once we overcome a few obstacles and difficulties in the way. It is also important to avoid some biases in the study of institutions, where institutions and characteristics of a particular type are overgeneralized to the set"

"At the age of twenty, Place had worked through the histories of Greece and Rome and some translated works of Greek and Roman writers. When unemployed, and for many months practically starving, he read many volumes in history, politics, law and philosophy, Adam Smith and Locke, and especially Hume's Essays and Treatises."

"I taught myself decimals, equations, the square, cube, and biquadrate roots. I got some knowledge of logarithms, and some of algebra. I readily got through a small schoolbook of geometry; and having an odd volume, the first, of Williamson's ' Euclid,' I attacked it vigorously and perseveringly. Williamson's is by no means the best book on the subject, yet I am still of opinion that it is the best book I could have had for the purpose of teaching myself."

"My desire for information was, however, too strong to be turned aside and often have I been sent away from a bookstall when the owner became offended at my standing reading, which I used to do until I was sent away... I used to borrow books from a man who kept a small shop... leaving a small sum as a deposit. At the age of twenty, Place had worked through the histories of Greece and Rome and some translated works of Greek and Roman writers."

"I was sometimes brought to a standstill, and at times almost despaired of making further progress... I knew no one of whom I could ask a question or receive any kind of instruction, and the subject was therefore at times very painful."

"I saw among them, much merit - much patient suffering - wonderful endurance - industry - care and desire to be and to appear respectable. I saw also the oppression of the laws as well as of most of their employers, and that also in which in its immediate effect is even more intolerable, the contumely with which all who thought themselves above them treated them. I not only saw all this but I felt it also, and I resolved never to abandon the working people and I never will."

"It were once clearly understood, that it was not disreputable for married persons to avail themselves of such precautionary means as would, without being injurious to health, or destructive of female delicacy, prevent conception, a sufficient check might at once be given to the increase of population beyond the means of subsistence ; vice and misery, to a prodigious extent, might be removed from society, and the object of Mr. Malthus, Mr. Godwin, and of every philanthropic person, be promoted, by the increase of comfort, of intelligence, and of moral conduct, in the mass of the population."

"It may be supposed that I led a miserable life but I did not I was very far indeed from being miserable at this time when my wife came home at night, we had always something to talk about, we were pleased to see each other, our reliance on each other was great indeed, we were poor, but we were young, active cheerful and although my wife at times doubted that we would get on in the world, I had no such misgivings."

"I can imagine nothing except being a footman or common soldier as more degrading than being either a barber or a tailor."

"Nature cannot achieve the first-best outcomes to which those like Kant aspire because the latter are not incentive-compatible. That is to say, they are achievable only if the human beings who live in the society act in a manner that is incompatible with their nature."

"In recent times Samuel Hollander has been lampooned rather than praised for seeing supply and demand mechanisms everywhere in the classical writers. Even Mark Blaug (1978:66) writes of Hollander as making Smith into more of a Léon Walras than a Ricardo, which I deem not to be a reductio ad absurdum but rather a merited compliment for Smith. (Given their respective dates, we might better compliment Walras for his Smith-like approach to general equilibrium.) Followers of Piero Sraffa or Marx, who are not identical sets, agree in their desire to reject mainstream equilibrium theory. In the sense of Thomas Kuhn’s The Structure of Scientific Revolutions (1962), they want to regard the classical (i.e., the pre-1870) system as an alternative paradigm, a different and better paradigm to the modern ones. That is why they reproach Hollander for claiming to discern supply and demand content in the classical writers and why they prefer a Ricardo to a Smith."

"I may begin by laying down as a principle that ‘all pain of human or rational beings is to be avoided’; and then afterwards may be led to enunciate the wider rule that ‘all pain is to be avoided’; it being made evident to me that the difference of rationality between two species of sentient beings is no ground for establishing a fundamental ethical distinction between their respective pains."

"For philosophy and history alike have taught...to seek not what is "safe," but what is true."

"It is sometimes said that we live in an age that rejects authority. The statement, thus qualified, seems misleading; probably there never was a time when the number of beliefs held by each individual, undemonstrated and unverified by himself, was greater. But it is true that we only accept authority of a peculiar sort; the authority, namely, that is formed and maintained by the unconstrained agreement of individual thinkers, each of whom we believe to be seeking truth with single-mindedness and sincerity, and declaring what he has found with scrupulous veracity, and the greatest attainable exactness and precision."

"Now, I agree with Mill in holding that the scientific study of the structures and functions of the different governments that have actually existed in human societies cannot well be pursued in complete separation from the scientific study of other important elements of the societies in question: whether the aim of the student is to ascertain the causes of the differences in such governments or to examine their effects. But I do not think that there is any fundamental difference, in this respect, between the study of political relations and the study of economic relations, or, again, of religion, of art, of science and philosophy, as factors of social life. In each of these eases the student concentrates his attention on one element of human history which can only be partially separated from other components of the whole complex fact of social development. Experience seems to show that this kind of concentration, and consequent partial separation of historical and sociological study into special branches, is unavoidable in the division of intellectual labour which the growth of our knowledge renders necessary in a continually increasing degree."

"[T]he history of thought […] reveal[s] discrepancy between the intuitions of one age and those of a subsequent generation. But where the conflicting beliefs are not contemporaneous, it is usually not clear that the earlier thinker would have maintained his conviction if confronted by the arguments of the later. The history of thought, however, I need hardly say, affords abundant instances of similar conflict among contemporaries; and as conversions are extremely rare in philosophical controversy, I suppose the conflict in most cases affects intuitions—what is self-evident to one mind is not so to another. It is obvious that in any such conflict there must be error on one side or the other, or on both. The natural man will often decide unhesitatingly that the error is on the other side. But it is manifest that a philosophic mind cannot do this, unless it can prove independently that the conflicting intuitor has an inferior faculty of envisaging truth in general or this kind of truth; one who cannot do this must reasonably submit to a loss of confidence in any intuition of his own that thus is found to conflict with another’s."

"The free-market economist who devoted more time and effort than anyone else to dissecting Keynes was W. H. Hutt, Professor of Economics at the University of Cape Town. Unlike other market economists, he recognized from the beginning the revolutionary character of The General Theory and its threat to the free market. His "intense dissatisfaction" with Keynes's theory of unemployment caused him to write his first major work, The Theory of Idle Resources, in 1939."

"[T]he inhuman severity of the paradox that ‘pleasure and pain are indifferent to the wise man,’ never failed to have a repellent effect; and the imaginary rack on which an imaginary sage had to be maintained in perfect happiness, was at any rate a dangerous instrument of dialectical torment or the actual philosopher. Christianity extricated the moral consciousness from this dilemma between base subserviency and inhuman indifference to the feelings of the moral agent. It compromised the long conflict between Virtue and Pleasure, by transferring to another world the fullest realisation of both; thus enabling orthodox morality to assert itself, as reasonable and natural, without denying the concurrent reasonableness and naturalness of the individual’s desire for bliss without allow."

"it is reasonable for a Utilitarian to praise any conduct more felicific in its tendency than what an average man would do under the given circumstances:—being aware of course that the limit down to which praiseworthiness extends must be relative to the particular state of moral progress reached by mankind generally in his age and country; and that it is desirable to make continual efforts to elevate this standard."

"The denial of any distinction between foreseen and intended consequences, as far as responsibility is concerned, was not made by Sidgwick in developing any one 'method of ethics'; he made this important move on behalf of everybody and just on its own account; and I think it plausible to suggest that this move on the part of Sidgwick explains the difference between old-fashioned Utilitarianism and the consequentialism, as I name it, which marks him and every English academic moral philosopher since him."

"It is in their purely physical aspect, as complex processes of corporeal change, that [physical processes] are means to the maintenance of life: but so long as we confine our attention to their corporeal aspect,—regarding them merely as complex movements of certain particles of organised matter—it seems impossible to attribute to these movements, considered in themselves, either goodness or badness. I cannot conceive it to be an ultimate end of rational action to secure that these complex movements should be of one kind rather than another, or that they should be continued for a longer rather than a shorter period. In short, if a certain quality of human Life is that which is ultimately desirable, it must belong to human Life regarded on its psychical side, or, briefly, Consciousness."

"A universal refusal to propagate the human species would be the greatest of conceivable crimes from a Utilitarian point of view"

"Plato’s reason for claiming that the life of the Philosopher has more pleasure than that of the Sensualist is palpably inadequate. The philosopher, he argues, has tried both kinds of pleasure, sensual as well as intellectual, and prefers the delights of philosophic life; the sensualist ought therefore to trust his decision and follow his example. But who can tell that the philosopher’s constitution is not such as to render the enjoyments of the senses, in his case, comparatively feeble?"

"The last comprehensive attempt to restate the principles of a free society, already much qualified and in the restrained form expected of an academic textbook, is Henry Sidgwick, The Elements of Politics (London: Macmillan, 1891). Though in many respects an admirable work, it scarcely represents what must be regarded as the British liberal tradition and is strongly tainted with that rationalist utilitarianism which led to socialism."

"Each person is morally obliged to regard the good of anyone else as much as his own good, except when he judges it to be less, when impartially viewed, or less certainly knowable or attainable by him."

"We have next to consider who the “all” are, whose happiness is to be taken into account. Are we to extend our concern to all the beings capable of pleasure and pain whose feelings are affected by our conduct? or are we to confine our view to human happiness? The former view is the one adopted by Bentham and Mill, and (I believe) by the Utilitarian school generally: and is obviously most in accordance with the universality that is characteristic of their principle. It is the Good Universal, interpreted and defined as ‘happiness’ or ‘pleasure,’ at which a Utilitarian considers it his duty to aim: and it seems arbitrary and unreasonable to exclude from the end, as so conceived, any pleasure of any sentient being."

"How far we are to consider the interests of posterity when they seem to conflict with those of now-existing human beings? The answer to this, though, seems clear: the time at which a man exists can’t affect the value of his happiness from a universal point of view; so the interests of posterity must concern a utilitarian as much as those of his contemporaries—except in that the effect of his actions on the lives and even the existence of posterity must be more uncertain."

"it seems scarcely extravagant to say that, amid all the profuse waste of the means of happiness which men commit, there is no imprudence more flagrant than that of Selfishness in the ordinary sense of the term,—that excessive concentration of attention on the individual’s own happiness which renders it impossible for him to feel any strong interest in the pleasures and pains of others."

"The good of any one individual is of no more importance, from the point of view...of the Universe, than the good of any other; unless, that is, there are special grounds for believing that more good is likely to be realized in the one case than in the other."

"Despite his inability to build a system, Sidgwick had made Cambridge Benthamite in its social reasoning. Perhaps this development was always inevitable in a university which had aimed to turn out mathematical rather than classical curates. But it had important consequences. Only a philosophy based on a hedonistic calculus could provided exact reasoning about social policy. Alfred Marshall was a product of Sidgwick's Cambridge. On the other hand, Sidgwick left moral philosophy in a mess. Intuitionist ideas revived, with an admixture of Hegelianism, in the more dynamic form of Idealism. But its headquarters were at Oxford rather than Cambridge; its high priests the Oxford philosophers Bradley and T. H. Green. Cambridge had become too critical, too empirical, to accept its ethics in metaphysical form. The way was open for G. E. Moore to construct a Cambridge system detached from both Benthamism and metaphysics. Moore was as much a product of Sidgwick's failure as was Marshall."

"The method is Bentham's; but there is none of Bentham's strong critical antagonism to the institutions of his time, and the mode of thought is much more what we might expect from an end-of-the-nineteenth-century Blackstone, or from an English Hegel, showing the rationality of the existing order of things, with only a few modest proposals of reform. If this is Benthamism, it is Benthamism grown tame and sleek."