Sunday, March 27, 2011

G.L.S. Shackle and the Economics of Uncertainty

One of the most fascinating exchanges I have read has been that of G. L. S. Shackle and Alan Coddington. Shackle wrote a great big book, Epistemics and Economics, in 1972. This prompted a very thoughtful response by Mr. Coddington in 1975 in the form of a lenghty review essay. From these events there ensued a lively and insightful exchange between these two theorists that led to, among other things, the coining of the phrase "Chapter 12 Keynesian" and the distinction between the syntactic and the semantic aspects of formal economic theory.

Both authors thought very highly of one another. In a review article of Coddington's book Keynesian Economics, Shackle writes of Mr. Coddington in the following way:

"Coddington was sometimes present at the seminars of untrammelled thought organised by Professor Littlechild at Birmingham, where the ultimate questions could be broached and long thoughts entertained. Littlechild himself, Jack Wiseman, Brian Loasby, Israel Kirzner, Murray Rothbard, Terence Hutchison, Professor Mahoney and others set going a discussion oriented to subjectivism, and Coddington of course was fully in the swim of such high-powered explorations."

What a great discussion this must have been! However, Shackle continues on, "Yet in his book he has by implication somewhat reproved us." This is true, as any reader of Mr. Coddington's book well knows. Mr. Coddington took a very different attitude to Shackle and his idea of radical uncertainty in the 1983 book from that which he entertained in the 1975 article. Here is Coddington in his later book:

"Although I have come to take a far more critical attitude than was evident in this review article to Shackle's interpretation of Keynes's work, the experience of getting to grips with Shackle's ideas has nevertheless left its traces."

Indeed, later in the book he even refers to Shackle's work as "analytically nihilistic." But this is different from the view Coddington advanced in the 1975 review article. There Coddington understood and appreciated Shackle's work greatly. In summarizing Shackle's work, Mr. Coddington quotes him saying "the theoretician is confronted with a stark choice. He can reject rationality or time." Reason, in other words, is incapable of application due to the existence of time. This is because all conduct is concerned with future affairs, and these do not yet exist. Moreover, an understanding of these future state of affairs requires the knowledge of the actions that will be performed by others because the future is the product of the conduct of everyone's actions. Here is Mr. Coddington:

"To be 'fully informed' about the consequences of one's own decision, one would have to know what everyone else is deciding at the same time. ... There is thus a simultaneity problem."

This is Shackle for you, in all his glory. Reading Shackle is like reading no other economist; it is quite a ride. Shackle forever changed the way I approach economics. But how does one get around this? How can one still do "economics" after admitting the radical uncertainty of the future and the consequent impossibility of rational decision making? Well, the later Coddington (1983 book) would argue that this cannot be done. Coddington argues in his later book that once the Shacklean succeeds in convincing the rest of the profession as to the veracity of this claim, "there would be nothing left but for the whole profession to shut up shop." This is surprising, because the earlier Coddington (1975 review) had an answer to this: abandon formalization as an ideal. Here is Mr. Coddington in his earlier review article:

"carefully imprecise concepts [radical uncertainty] can give a more accurate expression of the economic world than precise ones. On these grounds, the kind of precision aimed at by the axiomatisers can be seen to be quite artificial in that to increase the precision of formalisms in no way contributes to a clarification of the mode of correspondence between the formalism adn the economic world it is supposed to represent."

This is an excellent defense of Shackle's economics. In fact, it is consistent with Aristotle's warning that "it is the mark of an educated man to look for precision in each class of things just so far as the nature of the subject admits." The existence of uncertainty does not permit the precise formalization of economic concepts, precisely because human conduct involves creativity and daring, not probable estimates of likely consequences.

Austrians interested in uncertainty should give this literature a careful and close reading. Here are the references:

1.) Alan Coddington "Creaking Semaphore and beyond: A Consideration of Shackle's 'Epistemics and Economics' " The British Journal of the Philosophy of Science, 26 (2), June 1975.

2.) G. L. S. Shackle "The Romantic Mountain and the Classic Lake: Alan Coddington's Keynesian Economics" reprinted in Shackle, Business, Time and Thought: Selected Papers of G. L. S. Shackle.

3.) G. L. S. Shackle "Sir John Hicks's 'IS-LM': an explanation'; a Comment" reprinted in Shackle, Business, Time and Thought.

4.) Alan Coddington Keynesian Economics: The Search for First Principles, George Allen & Unwin, 1983.

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