The Unknown Keynes
No, Not Geoffrey
In 1982, the working methods of Charlie Chaplin, the last great English comedian, were largely unknown. Chaplin owned and controlled the land, the trees and the company. As a result there were no surviving scripts sent around for historians to analyze, no studio notes to act as traces of development and interviews with co-stars were frustratingly vague. Such interviews as existed simply confirmed that Chaplin was brilliant and energetic but also demanding, all things which could be easily guessed from his finished products. Rumorsabout Chaplin destroying old footage abounded – some of them factual – so there was every reason to believe this would be the rule for the rest of time. The Little Fellow would, sphynx-like, sing his everyman nonsense forever.
In 1983, something amazing happened. Oona Chaplin, the comedian’s final wife, granted a pair of film historians access to Chaplin’s vault. They were shocked to discover not just a couple feet of footage but a stockpile of outtakes, newsreel footage and even an entire unreleased film. For the first time it became possible to infer the methods of development of Chaplin’s masterpieces. They released this footage in a series titled The Unknown Chaplin.
In that spirit, I want to take you today on a little trip through ‘The Unknown Keynes’. We will look at six articles. The first three are biographies of scientific men which reveal his attitude toward the creation of science. We will see that his attitude towards scientific creativity is “abductive” in the sense of Peirce. The next three articles historically expound Keynes economics, starting with his monetaristic phase, then moving through his critical phase and ending with his mature economic theories.
This is a classic article. Schumpeter called it “the most brilliant life of a man of science I have ever read”. Famously, Keynes depicts Marshall as almost the ideal economist, with a strong emphasis on the complex of skills the task requires. The image of a tiny bright red Alfred Marshall reading Hegel’s Philosophy Of History on a glacier is too ridiculous to be false in the slightest. This idealization comes partly from Marshall’s recent death and partly from the reliance on his widow for information. We can see this in the wryer portrait painted by the footnotes.
That said, there is much to praise in this long and interesting history, but for today the most relevant section is part VI. We can also look through this part for examples of abducted hypothesis, which show that the core of Marshall’s theory was formed by pure abduction:
Internal & External Economies as well as Prime & Supplementary Cost were abducted by Marshall from manufacturers.
The concept of elasticity was invented as a solution to a geometric problem, imagined while soaking in a tub.
Before moving on, I would like to highlight something. Though Keynes was a great microeconomist, most of his statements about that field were ober dicta, such as the famous Appendix On User Cost. Section VI contains rare clear statement of Keynes’ foundational opinions on microeconomics.
“[In correct microeconomic theory] the notion of the margin [is] extended beyond Utility to the conditions of any economic factor which can be regarded as capable of small variations around a given value … In particular the notion of Substitution at the Margin … [is] extraordinarily fruitful in results … This method allowed the subsumption of wages and profits under the general laws of value … just as previously [e.g. by Mill] the theory of money had been so subsumed.”.
William Stanley Jevons, 1835 - 1882
Moving on, Jevons is a perfect foil to Marshall: logical where Marshall is organic, inductive where Marshall is historicist, pessimistic where Marshall was optimistic and revolutionary where Marshall is evolutionary.
Put more constructively, Keynes sees Jevons’ fundamental dialectic as the conversation between what Peirce called deduction, induction and abduction.
Deduction: Jevons was the co-founder of Boolean algebra, but by “deduction” I don’t mean to confine to his strictly logical work. Jevons was the first to demonstrate the marginal analysis used by Ricardian economists to assess land values was the logically most general case from which all others can be built. JS Mill - Jevons’ lifelong anti-idol - had shown that a competent Ricardian could fill out all the ‘special’ cases (joint production, money, credit, etc.) of value surrounding the central case of determining the value-add of a flow-input/flow-output process. The habit of leaving every particular issue as a special case gives Mill’s Principles its hard to define but objectively present flab. One can see the difference in Jevons vs Mill’s treatments of the Water/Diamond Paradox of Adam Smith. Mill - following De Quincey - denies that use-value has any place in economics at all. Use-value is the ground of the moralist, not the economist. Jevons, meanwhile, claims exchange-value is exactly equal to the marginal use-value of water, which (he points out) means that he can explain the cases of high prices of water more easily than Mill. Whatever one thinks of this theory, the Jevons’ equation is certainly more interesting than Mill’s assertion.
Induction: Though remembered as a theorist, Jevons was in his own time chiefly known as an inductivist. The beginning of his scientific career was in meteorological observation rather than economics. It was through induction Jevons made one of his most interesting contributions: the inductive theory of the business cycle. Though Mill had already opened up space for a business cycle in his Principles, it was Jevons who made the key observation “… great commercial fluctuations … diversify trade …[due to] the varying proportion which the capital devoted to permanent and remote investment bears to that which is temporarily invested to reproduce itself.”. The key data underlying this assertion Jevons collected for his Statistical Atlas. One could argue that it wouldn’t be until Keynes himself that this observation would be brought into deductive theory.
Abduction: Jevons is most associated with a theory neither deductive nor inductive in character: the sunspots theory of the business cycle. Jevons’ reasoning seems to follow Peirce’s abductive ‘syllogism’ almost exactly: “The surprising fact, an approximately 11 year business cycle, is observed; But if the almost 11 year sunspot cycle were creating a climate cycle, an 11 year business cycle would be a matter of course; Hence, there is reason to suspect that 11 year sunspot cycle is creating a climate cycle.”. With our service economy and rugged 21st century wheat and rice crops, the idea that sunspots were driving the business cycle appears a bit comical, but it must be remembered that we are talking about the 19th century: highly agricultural societies with comparatively little agricultural engineering.
It is by Keynes’ exploration of this dialectic through which this history can give much insight into how a new hypothesis enters into a field
The above two portraits are of near contemporaries, this is a proper history. Economic theorists are usually contrasted, rather than compared with, historians and scholars. But Keynes, an exception to so many such regularities, was the first modern Newton scholar. This came about because Newton’s papers - still owned by his family - had been sold in The Depression and Keynes used his considerable skills as an investor to finance their repurchase. As a result, Keynes was the first to obtain his opinions on Newton from Newton’s actual notebooks.
Moving on to the analysis, Keynes’ revealed that Newton at the height of his powers was not the “Sage and Monarch of the Age of Reason” but a magician, a religious heretic and an alchemist. This was, in Keynes’ time, a thunderbolt: Newton had for over 200 years been the inductive proof of the Baconian method.
Now, Keynes was no Baconian. Keynes’ comment that “[Newton’s] experiments were always, I suspect, a means, not of discovery, but always of verifying what he knew already.” should be read as admiration, not condemnation. The importance of Newton’s background is that it reveals that it reveals that the creativity of Newton was abuctive, in the sense of Peirce, rather than inductive in the sense of Bacon.
Keynes goes on to suggest that Newton in his old age himself began the myth of the Baconian rationalist - nobody who has read Opticks can fail to notice the change in the author of the two books. The bulk of the experiments in Opticks had been done in the frenzied years, the writing in the calm ones. Perhaps the suggestion Keynes implies is that Baconianism is not a method, but a style and one which may be affected.
Essays In Economy
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