Sunday, March 27, 2011

The Battle for George Shackle

I was emailed earlier today by a reader of this blog who alerted me to a comment made by Peter Boettke. Here is the passage:

"BTW, and this is directed at Matt Mueller, you made a claim earlier -- Shackle taught us that scarcity doesn't apply in the 1930s because of expectations, I wrote back and gave you a citation from 1959 in which Shackle fully embraces not only scarcity, but the importance of relative price movements (Economics for Pleasure [Cambridge University Press]) and you remained silent --- why? The Shackle you present us with, is not the G. L. S. Shackle who actually made contributions to ECONOMICS. Why should we value your Shackle over the real Shackle? I also might recommend to you Shackle's Expectation, Enterprise and Profit ... I don't agree with all the economics in this book, but it is Economics and that means that there are preferences and constraints, prices and profits, and systemic forces and equilibrating tendencies. Words such as uncertainty and process, cannot substitute for economic analysis, they have to instead be part of the analysis."

Economics for Pleasure is a book that was directed at a popular audience, and the book on the firm to which Mr. Boettke refers is a contribution of Shackle's that never really received much attention save for a few close British colleagues of his like Professors Ford and Earl (see in particular the interview of Shackle conducted by Peter Earl entitled "Coping with Uncertainty in Economics"). I cannot believe that Mr. Boettke is quite seriously of this opinion. It is like saying the real Mises is the one who wrote "Marxism Unmasked" and that the Mises of Human Action and The Ultimate Foundation of Economic Science is just a caricature. This is the position Mr. Boettke has taken in his assessment of Shackle's work. Shackle's most important and enduring works have been those that have expounded most clearly and cogently the imporance and necessity of uncertainty in economics. He used this insight to great effect in demonstrating the absurdity of rationality.

Pete Boettke is a strong defender of price theory, and I like that about him. I too enjoy reading about and learning price theory. Last summer I actually read through the textbooks written by Alchian & Allen, and Stigler. I also plan to read through Donald McCloskey's textbook on price theory this summer. But this sort of economics must not be accepted as the necessary and universal criterion by which all other insights and discoveries are judged. Economists set themselves too easy a task if they wish this to be their sole aim.

To give just one example. Shackle showed that uncertainty destroys the theory of marginal productivity, for if the value of a marginal unit can only be ascertained once the product sells for a price in the future, then how do we go about pricing that marginal unit today? Now Mr. Boettke is making the mistake in using standard price theory as the criterion in judging this contribution of Professor Shackle. He wishes to argue that "uncertainty ... cannot substitute for economic analysis." I am afraid that Mr. Boettke has shut himself off to possible new developments in theory with an attitude like this. The whole point to Shackle's 1967 book was to show that in the 1930's economic theory moved beyond the economics of scarcity and into the realm of expectation. Does Mr. Boettke wish to suggest that one's understanding of price theory can stop at 1920?

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