Keynes and the atomistic fallacy

9 Jul, 2013 at 13:47 | Posted in Economics, Theory of Science & Methodology | Comments Off on Keynes and the atomistic fallacy

At a social level too this phenomenon of aggregating seems to be massively important … This brings me to another one of Lars Syll’s posts on Keynesian economics and probability. Syll quotes a passage from Keynes’ A Treatise on Probability that I think is worth reproducing here in full:

treatprobThe kind of fundamental assumption about the character of material laws, on which scientists appear commonly to act, seems to me to be [that] the system of the material universe must consist of bodies … such that each of them exercises its own separate, independent, and invariable effect, a change of the total state being compounded of a number of separate changes each of which is solely due to a separate portion of the preceding state … Yet there might well be quite different laws for wholes of different degrees of complexity, and laws of connection between complexes which could not be stated in terms of laws connecting individual parts … If different wholes were subject to different laws qua wholes and not simply on account of and in proportion to the differences of their parts, knowledge of a part could not lead, it would seem, even to presumptive or probable knowledge as to its association with other parts … These considerations do not show us a way by which we can justify induction … No one supposes that a good induction can be arrived at merely by counting cases. The business of strengthening the argument chiefly consists in determining whether the alleged association is stable, when accompanying conditions are varied … In my judgment, the practical usefulness of those modes of inference … on which the boasted knowledge of modern science depends, can only exist … if the universe of phenomena does in fact present those peculiar characteristics of atomism and limited variety which appears more and more clearly as the ultimate result to which material science is tending.”

For Keynes modern science is tending toward an atomistic or fragmented view of reality and this is likely to prove dysfunctional … Keynes, on the other hand, recognised that understanding the world required more than that.

This is especially so in social science especially because, as we discussed earlier, people not only tend to think in terms of aggregations, but they also actively build their world into aggregates and themselves into groups and teams. To be unable to understand this tendency toward aggregation is to be unable to understand the social world.

This tendency, however, makes many forms of modern econometric technique useless. These techniques essentially seek to identify correlations between variables in the data. They do so either haphazardly or by plugging in some sort of model. Both methods are unlikely to work for complex data. The haphazard method will likely just produce dross while the idea that a simple model can capture complex changes in data that represents the movement through historical time is completely wrongheaded.

Models are just tools for thought and when doing economic analysis we must apply models loosely (if at all). We must learn — not through study, but through practice — to know when a given model or idea is useful in explaining a change in the economic headwinds. The cognitive mechanism that we use to determine this is similar to that which distinguishes in the above picture between the two faces and the vase. The same data, the same event can be looked at through many different lenses, and a skilled analyst must be able to not only see as many different perspectives as he or she can but also judge as to which is the most suitable. This requires a great deal of flexibility and, in my opinion, separates those who are actually interested in doing economics from those who are just interested in tinkering.

Philip Pilkington

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