Table Of ContentPALGRAVE STUDIES IN THE HISTORY OF ECONOMIC THOUGHT
Keynes on Uncertainty
and Tragic Happiness
Complexity and Expectations
Anna M. Carabelli
Palgrave Studies in the History of Economic
Thought
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Anna M. Carabelli
Keynes
on Uncertainty
and Tragic Happiness
Complexity and Expectations
Anna M. Carabelli
University of Eastern Piedmont Amedeo Avogadro
Novara, Italy
ISSN 2662-6578 ISSN 2662-6586 (electronic)
Palgrave Studies in the History of Economic Thought
ISBN 978-3-030-75664-2 ISBN 978-3-030-75665-9 (eBook)
https://doi.org/10.1007/978-3-030-75665-9
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Contents
1 Introduction 1
References 11
2 Rationality as Reasonableness: Probability 13
Probability as Reasonableness 13
Economic Expectations, Reasonableness and Conventional
Rules 15
Speculator’s Knowledge 17
Ignorance and Uncertainty 18
Reasonable Economic Policy: The Reasonable Justification
of Economic Policy and Intervention 23
Public Institutions and Limited Knowledge 26
References 28
3 Complexity and Incommensurability:
Multidimensional, Heterogeneous and Interdependent
Magnitudes. Probability and Economic Magnitudes 31
Probability: Measurement and Comparison 32
CASE-III:Non-QuantitativeComparisonofProbabilities
and Incommensurability 34
The Hypothesis of Homogeneity 37
Joint Judgements: Direct and Organic Judgements 40
Joint Judgements of Probability and the Weight of Argument 40
Joint Judgements of Probability and Goodness: Right Conduct 41
v
vi CONTENTS
Keynes’s Philosophy of Measure: Intrinsically
Incommensurable Magnitudes 46
From Probability to Economic Quantities 48
General Price Level 49
Utility 52
Incommensurability and Incomparability Due
to Heterogeneity in Dimension 52
Keynes’s Choice of the Units of Quantities and Measure
in Economics 56
Units of Time and Comparison in Time and Space 57
The Atomic Hypothesis (the Hypothesis of Independence).
Organic Interdependence. Wholes and Parts 59
‘Complex or Manifold’ Economic Magnitudes 66
References 71
4 Keynes’s Methodology of Criticism: Probability
and Classical Economic Theory. Logical Fallacies: The
IntroductionoftheTacitAssumptionsofHomogeneity
and Independence 75
The Methodology of Critique of Probability in a Treatise
on Probability 76
The Methodology of Critique of Classical Economic Theory 77
Critique of Premises 77
Search for Tacit Assumptions 78
Types of Tacit Assumptions 79
Characteristics of Classical Tacit Assumptions 81
The Limits Set to the Classical Tacit Assumptions 81
What Keynes Means By a ‘General Theory’ 83
The Logical Flaw in Classical Theory: ‘Ignoratio Elenchi’ 84
The Epistemological Role of Classical Tacit Assumptions 85
Keynes’s Own Method of Reasoning in the General Theory 90
References 94
5 Uncertainty as the Legacy of Greek Tragedy:
Uncertainty as Tragic Choice 97
Tragedy: Main Themes 99
Tragic Moral Dilemmas 99
Keynes’s Ethics of Virtues 101
Pluralism and Heterogeneity of Ends and Values 103
CONTENTS vii
Irreducibility of Heterogeneous Plural Ends and Values:
Keynes’s Pleasure, Goodness and Happiness 104
References 108
6 Happiness as Tragic Aristotelian Eudaimonia 109
The ‘Fragility of Goodness’ 110
The Greek Legacy of the Ethics of Virtues Against
Utilitarianism 110
Aesthetics as Sublime: ‘Tragic Beauty’. Pluralism
in Aesthetics, the Beautiful and Sublime 112
References 114
7 Moral and Rational Conflicts and Dilemmas 115
Keynes on Moral Conflicts and Dilemmas 115
Keynes on Rational Conflicts and Dilemmas 119
References 124
8 International Relations: Complexity, Interdependence
and Multilateralism—A Tragic Dilemma 125
Indian Currency and Finance (1913) and the Economic
Consequences of the Peace (1919) 126
The General Theory (1936) and International Relations 127
The Commod Control Scheme (1938–1942) 129
The Interwar Period: Protection and Trade as a Means
of Exporting Unemployment 131
TheInternationalClearingUnion,oronTradeasExchange
of Goods Against Goods 136
Memorandum ‘Overseas Financial Policy in Stage III’
(1945) 140
Keynes, Current Global Imbalances and the Euro-Zone
Project 144
References 148
9 Conclusions 151
References 155
Index 177
CHAPTER 1
Introduction
In his introduction to the Series of Cambridge Economic Handbooks
(1922–1923), Keynes writes: ‘The theory of economics does not furnish
a body of settled conclusions immediately applicable to policy. It is
a method rather than a doctrine, which helps its possessor to draw
correct conclusions’ (CW XII, 856). This passage highlights the conti-
nuitybetweenATreatiseonProbability andKeynes’seconomicworks.In
his discussion with Roy Harrod in 1938, that is, in his most mature and
outspokenmethodologicalmanifesto,whenhestatesthat‘economicsisa
branchof logic,a way of thinking’, rather than apseudo-naturalscience’,
Keynes is merely restating his earlier position (CW XIV, 296).
Keynes’s view of economic theory is thus one of a method or
logic, perhaps best described as an apparatus of probable reasoning. In
Chapter 21 of The General Theory, he writes that the object of economic
analysis is, ‘not to provide a machine, or method of blind manipulation,
which will furnish an infallible answer, but to provide ourselves with an
organised and orderly method of thinking out particular problems’. He
adds, ‘after we have reached a provisional conclusion by isolating the
complicated factors one by one, we then have to go back on ourselves
and allow, as well as we can, for the probable interactions of the factors
among themselves’. He points out that ‘this is the nature of economic
thinking’ and that we would be lost in the wood without abstract and
© The Author(s), under exclusive license to Springer Nature 1
Switzerland AG 2021
A. M. Carabelli, Keynes on Uncertainty and Tragic Happiness,
Palgrave Studies in the History of Economic Thought,
https://doi.org/10.1007/978-3-030-75665-9_1
2 A. M. CARABELLI
logical reasoning: ‘Any other way of applying our formal principles of
thought (without which, however, we shall be lost in the wood) will lead
us into error’ (CW VII, 297).
Keynesmaintainsthateconomicsisnotanaturalscienceandthatposi-
tivistic methods cannot be applied to it. Discussion on the limits to the
application of the atomic hypothesis within physical science itself appears
in his early writings on probability, in addition to his non-positivist inter-
pretation of Newton’s method (TP, 276–277 on the atomic and organic
hypotheses; Carabelli 1988, 100–102, 109). Further, a very early refer-
ence to the ‘mechanical theory’ of physical science, and its distinction
between primary and secondary qualities, can be found in Keynes’s MSS
(19.9.1905) Miscellanea Ethica: ‘It is often supposed that in shape, size
and motion the objects are like the sensations, and that in colour, taste,
smell, heat and cold they are unlike. This is the mechanical theory of the
external world’.1
1My thanks are due to the publishers Edward Elgar, Routledge and the Cahiers
d’Economie Politique for permission to use material already published in the following
articles:Carabelli,A.M.1991.TheMethodologyoftheCritiqueoftheClassicalTheory:
Keynes on Organic Interdependence. In Keynes and Philosophy: Essays on the Origin of
Keynes’s Thought, ed. B. Bateman and J. B. Davis, 104–125. Aldershot: Elgar; Carabelli
A. M. 1992. Organic Interdependence and Keynes’s Choice of Units in the General
Theory. In The Philosophy and Economics of J.M. Keynes, ed. B. Gerrard and J. Hillard,
3–31. Aldershot: Elgar; Carabelli, A. M. 1994. Keynes on Mensuration and Comparison.
In Perspectives in the History of Economic Thought, ed. K. Vaughn, 204–238. Aldershot:
Elgar; Carabelli, A. M. 1995. Uncertainty and Measurement in Keynes: Probability and
Organicness.InKeynes,KnowledgeandUncertainty,ed.S.DowandJ.Hillard,137–160.
Aldershot: Elgar; Carabelli, A. M. 1998b. Keynes on Probability, Uncertainty and Tragic
Choices. Cahiers d’Economie Politique 30–31: 187–222; now also in Nisticò, S., and D.
Tosato, eds. 2002. Competing Economic Theories. Essays in Memory of Giovanni Caravale,
249–279. London: Routledge; Carabelli, A. M. 2002. Speculation and Reasonableness:
A Non-Bayesian Theory of Rationality. In Keynes, Uncertainty and the Global Economy:
BeyondKeynes,ed.S.DowandJ.Hillard,vol.2,165–185.Aldershot:Elgar;Carabelli,A.
M.2003.Keynes:EconomicsasaBranchofProbableLogic.InThePhilosophyofKeynes’s
Economics, ed. J. Runde and S. Mizuhara, 216–226. London: Routledge. I thank Elgar
and my co-author Nicolò De Vecchi, University of Pavia, for permission to use some of
the material contained in Carabelli, A. M., and N. De Vecchi. 2001b. Individuals, Public
InstitutionsandKnowledge:HayekandKeynesInDivisionofLabourandInstitutions,ed.
P. L. Porta, R. Scazzieri, and A. Skinner, 229–248. Aldershot: Elgar. I thank Routledge
and my co-author, Mario Cedrini, University of Turin, for permission to use some of the
material contained in Carabelli, A. M., and M. Cedrini. 2015. On “Fear of Goods” in
Keynes’s Thought. European Journal of the History of Economic Thought 22 (6): 1115–
1148.IthanktheProvostandScholarsofKing’sCollege,Cambridge,forkindpermission
