Digressions&Impressions

On George Stigler and the "Problem of the Negro"

The leaders of Negro thought in America have done the members of their race one substantial service and one much greater disservice. The service was to arouse discontent with the pace at which the social, political, and economic status of the Negro was rising. That the Negro has been becoming wealthier, better educated, more fully enfranchised, and less improperly treated by his white brethren is not seriously arguable. But the distance still to be covered is immense, and no man may say that the pace of 1940 or 1950 is the maximum that should be aimed at in raising the Negro's status.

Nor is the raising of discontent an easy or an uncourageous act. Long slumbering inequities become almost foreordained in their persistence, and a conscious and sustained and even dramatic challenge to the inequities is required. Nor will the leaders of the challenge, who disturb the comfortable flow of customary events, be treated with civility or respect—they are indeed deliberate trouble-makers.

For trouble is apparently the threshold of progress. A society does not respond quickly, or sometimes even at all, to calm rational arguments or to powerful ethical principles. The drama of personal injustice, the presence of devils (or at least of villains or prejudiced holders of privilege), full membership in the righteous, marching columns— these seem to be essential in any basic reform in the United States today (and perhaps in all countries always). So indignation must be produced, and remedies provided in catechism form.

Wrong Target

The great disservice of the leaders of Negro opinion was to direct the discontent at the white population. It was proper to demand political rights that only a majority could confer. It was proper to ask the white population to assist in the rise of the Negro—a small enough restitution for the unreversible [sic] mistakes of the past. Rut [sic] it was a terrible disservice to identify the white man as the main obstacle to the rise of the negro.

It was a disservice because it must lead to hatred, and hatred to violence, and violence to the retardation of the mounting compassion and assistance of the white mean. [sic] Could the stream of demonstrations, growing in size and in insolence, approved or at least tolerated by the political, intellectual, and religious leaders of the nation, have any other message for a semi-literate Negro teenager in a slum, than that evil prejudice of the white man was the fundamental cause of his low estate? Was he to be a metaphysician, distinguishing carefully the demonstration of the principle of the dignity of all men from the proposition that every inadequacy of his life was due to white opposition?

But the disservice was terrible for a more dreadful reason: it was false as a guide to improvement. The past is not for us to relive, and no amount of restitution for past injustice by the white man could solve the basic problem of the Negro in America. That problem is that on average he lacks a desire to improve himself, and lacks a willingness to discipline himself to this end. The task of our time has been to make the Negro discontented with himself, not with the white man.

Educational Needs

Consider education. It would be easy to vote a Ph.D. for every young Negro in America—such a handsome restitution for past denial of educational rights! Good educational facilities, better facilities than whites have, are indeed a moral responsibility of the community to the Negro. The real task, however, is not to provide good schools and good teachers, but to create an unquenchable thirst for knowledge in the Negro youth. Schools beyond any need can be built in a few years: the love of knowledge and the willingness to work hard and achieve it are the product of cultural evolution. The Negro leaders should be helping the emergence of this cultural tradition, when instead they are diverting Negro energies to better school buildings.

Inferior Workers

Consider employment. The Negro boy is excluded from many occupations by the varied barriers the prejudice can raise, and these must and will be struck down. But he is excluded from more occupations by his own inferiority as a orker, again on average. Lacking education, lacking a tenacity of purpose, lacking a willingness to work hard, he will not be an object of employers' competition. What leader of Negro thought is fostering the ancient virtues of diligence and honesty and loyalty? It is so much easier to seek quotas for Negroes,

Consider the Negro as a neighbor. He is frequently repelled and avoided by the white man, but is it only color prejudice? On the contrary, it is because the Negro family is, on average, a loose, morally lax, group, and brings with its presence a rapid rise in crime and vandalism. No statutes, no sermons, no demonstrations, will obtain for the Negro the liking and respect that sober virtues commend. And the leaders of Negro thought: they blame the crime and immorality upon the slums and the low income— as if individual responsibility could be bought with a thousand dolllars a year.

It is not easy or popular to place the Negro's discontent upon himself. People will insist upon speaking of the previous or present faults of the white community, which numerous and deplorable—and now unimportant to the Negro problem. People will denounce any talk of the Negro's cultural and economic inferiority as racism, thinking no doubt that to ignore the heritage of past ignorance and vice and folly of the white man and the black man will eliminate the heritage.

One would think that the lesson of the Jews in America would have been taken somewhat more to heart. The Jewish immigrants were on average poor. with meagre education. and confronted by a vast panoply of prejudice. They brought with them precisely the virtues that should be instilled in the Negro: a veneration and irrepressible desire for learning; frugality; and respect for the civilization of the western world. They have prospered amazingly, not only economically but educationally and socially and culturally, and in the process have enriched and adorned our society., They are in the rapid process of losing their identity—at the present pace in a few generations wee shall all have a little, but only a little Jewish blood.

The direction of the Negro's discontent to himself is an unthankful task. How much easier to march on the mayor than to teach industry to a boy: how much simpler to keep the children home to coerce the school board than to instill in them a love of art and literature and science. The task does not allot a large role to the prominent leaders, and calls for different traits. Knowledge is more valuable than anger, and love more valuable than generosity in the task that faces us.

The leaders of Negro opinion are benevolent men, caught in the belief that the only arm of social improvement is the state. The Africans are poor and ignorant? Out with colonialism! The American Negro ids a lesser citizen? To the barricades! No—to the home and church and school.--G.J. Stigler (1965)* "The Problem of the Negro" New Guard, [HT Calvin Ter Beek via Brad deLong]

I am unsure when I first decided to try to face squarely the racist and eugenic elements in the authors I study. I do know that in the late 1990s, it was David M. Levy and Sandra Peart that repeatedly alerted me (and others) to the significance of these themes for the (joint and separate) history of economics and history of philosophy and that how this history is handled also matters to the future of these disciplines (and their interactions). So, alerted I increasingly started to notice eugenic and racialized themes in places I least expected when I was still a PhD student (e.g., Berkeley's Querist; young Neurath; Voltaire; Hume and Montesquieu; etc.) Over the years I have tried to alert my readers to these sordid facts and their conceptual and philosophical significance. 

Prompted by a chance encounter with Nathaniel Adam Tobias Coleman, I have also come to see that universities today struggle to own up to their eugenic past and ongoing eugenic commitments (recall here; here; here; here). I don't think that struggle is a contingent matter. By this I do not mean that universities today are primarily still interested in advancing racialized or cultural hierarchy -- although undoubtedly some faculty don't see why this would be problematic --, but rather that in the very ideas of bildung and emancipation, improvement of humans is baked in. This shows up in all kinds of ways in the  efforts of bio-medicine-technology at human enhancement. I don't need to remind my audience how frequent universities tie themselves in knots over their inability to convey a consistent approach to academic freedom and, say, minimum respect for all.

Even so, I was really shocked by Stigler's essay. (Stigler won a Nobel in economics in 1982.) I have frequently blogged and published in scholarly journals about Stigler and been reading him on and off for about twenty five years now. This is not a coincidence. Levy was one of George Stigler's few PhD students in the history of economics. And his son, Stephen Stigler (an eminent historian of statistics) was on faculty at Chicago. I remember my nervousness and pride when I took on the father's interpretation of Adam Smith in front of the very kind son (who since has given me permission to work with his father's archives and even checked his library on my behalf once). 

As an aside, I was in the audience, when Stephen Stigler presented a version of his interpretation of the debate between Pigou and Pearson to Chicago's philosophy department. The debate is of interest because of the way they handled what came known as the amalgamation or Simpson's paradox. But the background is the scientific status of eugenic ideas. Only later did I realize how much of modern statistics was developed to enhance or make rigorous eugenic reasoning. For a while I was very fond of Pigou until I realized how immersed in eugenics he really was, too.

Okay, let's turn to Stigler troubling piece. First, he starts by acknowledging that "calm rational arguments" and the enunciation of "powerful ethical principles" have little impact on public opinion and tend to be impotent in generating welcome, even necessary reform. Echoing Machiavelli, he recognizes

that dramatic challenge and turbulence may be required to prompt social reform. And Stigler here anticipates his later, more famous claim (that helped him win the Nobel) that to influence policy one must understand (recall) “the political forces which confine and direct policy.” Stigler clearly believes, with Madison, that politics is the realm of opinion. This is also evident in (the title of) his essays, in which he reflects on the relationship between economics and politics, The Economist as Preacher, and Other Essays.

But it does not follow that there is no method in the political madness. In fact, in one of his most famous papers, he explicitly rejects the then popular idea "that the political process defies rational explanation: "politics" is an imponderable, a constantly and unpredictably shifting mixture of forces of the most diverse nature, comprehending acts of great moral virtue (the emancipation of slaves) and of the most vulgar venality..."' (Note the example.)

Unlike other critics of the civil rights movement, Stigler is, thus, not tempted by tone-policing. Anticipating contemporary philosophers (who (recall) draw on Lorde; and here; here), he thinks indignation in public life may not just be fully justified, but also instrumentally necessary to produce reform. And, in fact, his idea of politics is not idealized at all. He fully expects that the "courageous" leaders of the civil rights movement will not be treated with "civility or respect." Given that he recognizes this, his use of "insolence" is odd to say the least.

But despite this stance, Stigler's attitude toward civil rights leader is not just unsympathetic, it's contemptuous (note the repeated "disservice"). This is all the more remarkable because Stigler does not deny that it is true that "the white man" is an "obstacle to the rise of the negro." Rather, he demands from the subordinated that they do not offend the sensitivities of the majority because it "must lead to hatred, and hatred to violence, and violence to the retardation of the mounting compassion and assistance." And the contempt here is not just for the civil rights leaders and their followers, but also for the non elite white majority. For it is assumed that their response to the truth must be hatred and violence. It does not occur to Stigler to explore that hatred and violence may be engineered by local white elites who fear that their power will be undermined. (This would fit his rent-seeking view of politics.)

At this point, I need to note something. Stigler's economics was, despite the clear political preference for free markets, in this period data-driven. His studies of monopoly and even the sociology of knowledge are data rich. His style of economics, especially in the 1940s-1960s, was neither like the highly mathematical work that was dominating general equilibrium modeling nor like the back of the envelope calculations of consumer surplus pioneered by his Chicago colleague Harberger. It was also little like the work he later did with Becker. So with that in mind, we can see how things go really off-rails, when Stigler notes that "no amount of restitution for past injustice by the white man could solve the basic problem of the Negro in America. That problem is that on average he lacks a desire to improve himself, and lacks a willingness to discipline himself to this end." 

First, as one of the pre-eminent historians of economics of his generation, Stigler was familiar with both Adam Smith's denunciations of slavery, and the 19th century debates in political economy over how to use compensation principles to rectify injustices.** So, it is astonishing that he takes for granted that restitution would not contribute greatly (let alone) solve the basic problem.

Second, and undeniably racist, he makes gross generalizations without any evidence about the psychological disposition of a whole population ("on average). Since Adam Smith is Stigler's hero, it is worth noting that for Smith it is axiomatic that there is "uniform, constant, and uninterrupted effort of every man to better his condition, the principle from which public and national, as well as private opulence is originally derived." And as I have noted elsewhere this is part of Smith's anti-hierarchical conception of human nature.

Third, since in the very period African-Americans were subject to violence while trying to access education, it is appalling to read Stigler assert that "The real task, however, is not to provide good schools and good teachers, but to create an unquenchable thirst for knowledge in the Negro youth." And no less appalling are the fact free claims that "the Negro family is, on average, a loose, morally lax, group." And so on. Whatever merit, if any, Stigler's underlying economic criticism of the solutions pursued by the leaders of the civil rights movement might have had, it is completely overshadowed by his willingness to engage in racialized stereotyping and victim blaming.+

Let me close. I was sincerely shocked when I read Stigler's essay. I want to explain why. This shock is, in part, because I intend to understand Chicago economics as opposed to the state-centric eugenics tendency they loath in Keynes (and Pigou). And, in part, because I understand them as heirs to the cosmopolitan and anti-racist tendencies evident in the founders of neoliberalism--many of them outspokenly antiracist (even if their modern critics tend to overlook this or very grudgingly acknowledge this). 

I am by no means an uncritical admire of Stigler in my own work. Despite admiring some of his sociology of knowledge, I have long argued he is partially response for the abuse of Kuhnian ideas as a means to silence alternative viewpoints in science. But because of his fondness of pithy phrases and institutional centrality, I have often used his writings (in this blog and my scholarship) to illustrate or illuminate debates within economics or in the philosophy of economics.  But this does not get to heart of the matter.

Stigler was (recall) centrally involved in articulating, the Kalven report, one of the most thoughtful reports on the mission of higher education and the role of academic freedom in it. (I have critically discussed this report in a number of blog posts.) This is somebody that clearly took his task as an educator seriously, and he wrote non trivially on the economics of education. Yet, when given the opportunity to educate the "Young Americans for Freedom" (The New Guard was its house organ, and the organization was influenced by  of William F. Buckley, Jr.), he pandered not their best instincts, but to their worst prejudices. 

On Ellsberg's defense of Knightian Uncertainty, Arrow, and Ambiguity (II)

In most of this literature, the term ‘ambiguity’ has been treated as a synonym for what Knight called ‘uncertainty’ namely the fact that relative likelihoods are not characterized by well-defined numerical probabilities. The standard method of dealing with ambiguity in decision theory is to endow the decisionmaker with multiple priors as in Gilboa and Schmeidler (1989). This approach may be combined with a variety of preference models, notably including the maxmin model of Gilboa and Schmeidler (1989) and the smooth model of Klibanoff et al. (2005).
For a non-specialist this is puzzling; there is no obvious link to the ordinary meaning (or meanings)1 of ambiguity as a characteristic of propositions with more than one interpretation. In its normal usage, ambiguity is a linguistic concept, but in decision theory it is typically treated as a property of preferences.
The now-standard usage is quite different from that in Ellsberg’s (1961) original article. Ellsberg treated ambiguity, not as a property of preferences or relative likelihoods, but as a property of the information on which judgements of relative likelihoods might be based.

“Responses from confessed violators [of the expected utility (EU) axioms] indicate that the difference is not to be found in terms of the two factors commonly used to determine a choice situation, the relative desirability of the possible payoffs and the relative likelihood of the events affecting them, but in a third dimension of the problem of choice: the nature of one’s information concerning the relative likelihood of events. What is at issue might be called the ambiguity of this information, a quality depending on the amount, type, reliability and ‘unanimity’ of information, and giving rise to one’s degree of ‘confidence’ in an estimate of relative likelihoods.”

---Simon Grant, Ani Guerdjikova, John Quiggin "Ambiguity and awareness: a coherent multiple priors model." (17 April, 2020) [quoting p. 657 of Ellsberg's (1961) "Risk, Ambiguity, and the Savage Axiom]

In Yesterday's post I noted that while writing in defense of Knight, Ellsberg (1961) innovatively identified Knightian uncertainty with a class of decisions that can be specified precisely as empirical violations of the (Ramsey-)Savage axioms.* In particular, in such instances (when the formalization is violated) there is "no way to infer meaningful [subjective] probabilities for those events from their choices, and theories which purported to describe their uncertainty in terms of probabilities would be quite inapplicable in that area." (646; [parentheses added].) This identification was an innovation made possible and intelligible by formalization.  

As I remarked, Ellsberg noted that it is possible to treat the very same formalization as a [A] normative standard for a certain kind of ideal/idealized agent or [B] as a device to make predictions about agents. Ellsberg recognizes that Savage was (primarily) tempted by the normative interpretation whereas Ellsberg was primarily focused on the empirical interpretation. In particular, he wanted to identify classes of choice circumstances in which the possible rationality (669) of one's decision could not be articulated in or explained by reference to the Savage axioms. 

The Savage formalization allows the attribution to agents of precise subjective probabilities about distributions in the world. That is, in certain choice circumstances, the formalism allows for an interpretation of behavior that reveals if not inner states than at least structures that are compatible with such inner states. (It may be useful to compare this with the Samuelsonian strategy of revealed preference.)

With that in place, let's turn to ambiguity. As Grant/Guerdjikova/Quiggin note, in much of decision theory 'knightian uncertainty' is treated as synonymous with 'ambiguity' and has come to mean the absence of well-defined quantitative probabilities.+ And as they correctly note this is not quite what Ellsberg had in mind (and about that more in a second). Before I get to Ellsberg and ambiguity, it is worth noting that the absence of well-defined quantitative probabilities is indeed what Knight meant by uncertainty in the contrast between risk and uncertainty.

However, what the literature means by the absence of well-defined quantitative probability is (and now I quote Gilboa and Schmeidler (1989)) circumstances in which one "considers a set of priors as possible." (emphasis in original). It is important that this set is limited. Now, this is not quite what Knight, generally, intended to mean  by the contrast between risk and uncertainty.  In paradigmatic cases of uncertainty for Knight (and Keynes), we really have no right to make claims about the priors let alone treating them as well defined possibilities.

As an aside, this is not to deny that, as Richard Pettigrew noted to me, that "there are situations in which your evidence and/or current stage of scientific theorising is not going to deliver a unique probability assignment over the states you consider" but in which one has reasons to limit one's subjective probabilities to a set of possible distributions. And if forced to choose one may well come to think of your own (again quoting Pettigrew) as "your best subjective probabilities and use those while knowing that it would be equally compatible with your evidence to adopt an alternative set of probabilities."** If you and the other involved are experts in more or less the same situation, we can call this situation 'reasonable expert disagreement.' In fact, Savage himself noted (without having to contemplate violations of his axioms) that that “we must be prepared to find reasoning inadequate to bring about complete agreement.”  (1954 [1972]:7; see also 3, 67ff.) This is not trivial in the historical context, as I have noted elsewhere, in which the very idea of science involves the arrival of expert consensus. 

Now, as Grant/Guerdjikova/Quiggin note, Ellsberg thought ambiguity something else: namely it is a property of the "nature of one’s information."  And throughout the paper, Ellsberg goes on to deny that this feature "cannot be conveniently described in terms of a sample distribution." (659) Rather the point of using ''ambiguity" is to try to describe circumstances "when there are questions of reliability and relevance of information, and particularly where there is conflicting opinion and evidence." (659) So, one measure , but it is only one such measure, that one's information is ambiguous in Ellsberg's sense is the kind of reasonable expert disagreement [that is, situations one knows an expert's subjective probability about a distribution is compatible with another expert adopting an alternative set of probabilities.] But it is only one such measure because ambiguity itself cannot (to repeat) be reduced to and articulated in one distribution or another. As Ellsberg noted (660), Savage (57-60), too, had tried to characterize the nature of such ambiguity; Savage had explicitly acknowledged that formal theories known to him lacked resources to do so in satisfying ways.

Now, so for Ellsberg ambiguity is a "subjective variable" (660) about the nature of one's information. But the circumstances under which it arises can be characterized objectively. The proxy he uses to characterize these circumstances are violations of the Savage axioms can be predicted to occur and, perhaps, thought (somewhat) reasonable.

But that is not all of it (and this connects to Gilboa/Schmeidler).*** In circumstances of ambiguity one has, according to Ellsberg, some subjective grounds to "eliminate" some "possible distributions," but not all such possibilities. (661) For, Gilboa/Schmeidler (and the Bayesian literature) that is treated as the occasion to look for solutions to decision problems in terms of sets of priors as opposed to unique priors. In so doing, they end up echoing what I have called the displacement strategy of Knightian uncertainty. 

It is worth noting that there is an interesting difference of emphasis between trying to characterize an optimal decision strategy (in the manner of Gilboa/Schmeidler), say because one must choose or wish to guide policy-makers, and between wishing to promote understanding of how to think about or study one's information about possible distributions. (I have jokingly called the latter modal economics.) Ellsberg is clearly less interested in the former, and more interested in the latter.  Ambiguity in Ellsberg's sense does influence choice (664); yet Ellsberg is interested in finding out when and how, and to create "testable propositions" about such states [669], not to tell you what strategies to use in choice.

That is to say, Knight thought of uncertainty in terms of not knowing the (range and nature of) possible distributions. Ellsberg thinks we can develop rigorous thought  about what a theorist taught me to call intermediate circumstances in which we have some information about the possibilities. Somewhat surprisingly, according to Ellsberg -- and here he refers also to Chipman's experiments++ -- this thought has to be developed not from normative first principles, but rather experimentally ((655) within what in reviewing Donald Davidson, Suppes, and Siegel, he calls (in 1957) "the new field of experimental economics;" (1009). Of course, Ellsberg soon got preoccupied by different concerns. But that's really for another occasion.

So, Ellsberg has been remembered as generating a "paradox" in subjective expected utility theory. (This seems to be due to Harry V. Roberts.) This way of thinking about him says more about the economists' attitude toward their own past than Ellsberg. We have seen that alone among the responses to Knight that are still acknowledged by contemporary mathematical economists, Ellsberg wrote to vindicate Knight.+++ But he did so by using the canons of rational decision-making to specify when some circumstances of true uncertainty might occur. We could call them Ellsberg circumstances. These Ellsberg circumstances are characterized by constrained decision options in which information about world has the character of what he called ambiguity. In Ellsberg circumstances one grasps, we might say, the possible contours of the underlying distributions. Whether, in Ellsberg circumstances, it might pay to take bets on these contours is a tough challenge (one may well be in context of what he called "treacherous possibilities." (666)) He then opened the door not to better decision rules, but rather to the epistemology of information, which uniquely he thought ought to be explored experimentally.  

 

 

 

On Ellsberg's defense of Knightian Uncertainty, Arrow, and Ambiguity (I)

There has always been a good deal of skepticism about the behavioral significance of Frank Knight's distinction between "measurable uncertainty" or "risk," which may be represented by numerical probabilities, and "unmeasurable uncertainty" which cannot. Knight maintained that the latter "uncertainty" prevailed - and hence that numerical probabilities were inapplicable - in situations when the decision-maker was ignorant of the statistical frequencies of events relevant to his decision; or when a priori calculations were impossible; or when the relevant events were in some sense unique; or when an important, once-and-for-all decision was concerned.' Daniel Ellsberg "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, Vol. 75, No. 4 (Nov., 1961), pp. 643-669* 

Before Daniel Ellsberg become a household name for leaking the Pentagon Papers, he was already known among economists and subsequently philosophers for a paper, published after his service as  marine and during his graduate study, that has become associated with a 'paradox'  because it is seen as a challenge to Subjective Expected Utility theory, despite the fact that 'paradox' is not to be found in the paper. And, so, while paradoxes naturally attract attention, I'd like to focus the attention of this digression on Ellsberg's way of motivating and situating his own paper. 

The quoted paragraph is the first in the essay. After citing Knight's Risk, Uncertainty and Profit, the identity of the main skeptic toward Knight's distinction is identified as Arrow in Ellsberg's first footnote: "see Arrow's comment: "In brief, Knight's uncertainties seem to have surprisingly many of the properties of ordinary probabilities, and it is not clear how much is gained by the distinction. . . Actually, his uncertainties produce about the same reactions in individuals as other writers ascribe to risks." Ellsberg is quoting an important and lengthy (1951) review article by Arrow that both helped discredit Knight among mathematically inclined economists and also was key in creating the (recall Alchian inspired; and here) identification of uncertainty with randomness that became central in theories used in risk and price models in finance. So, the question I wish to pose is in what sense is Ellsberg vindicating Knight?

He is responding, in particular, to those who think  that, and Ellsberg is now quoting Ramsey's great (1926) "Truth and Probability," "for a "rational" man all uncertainties can be reduced to risks.3"  That is to say, Ellsberg's paper is meant to meet those who prefer to displace uncertainty with probable risk (and so eliminate true uncertainty) on their own ground. In particular, it is meant to engage those who think that (our gambling) "choices are influenced by, or "reflect," differing degrees of belief...[and] to infer those beliefs from the actual choices." It's at this point that Savage's postulates are introduced because these help distinguish systematically in the analysis of observed outcomes whether they track "relative expectations...[or] relative preferences for outcomes." As Ellsberg puts it, "if one picks the right choices to observe, and if the Savage postulates or some equivalent set are found to be satisfied, this distinction can be made unambiguously, and either qualitative or, ideally, numerical probabilities can be determined." (645)

At this point Ellsberg notes that Savage's postulates/axioms can be interpreted normative and empirically. They can be treated as a rational standard for how one ought to behave and as an empirical prediction of how people with "plenty of time to reflect" (646) will generally behave or (as Ellsberg puts it "the rules will be commonly satisfied." (645)) As others have noted, in the 1950s both approaches were not unusual, although in general, as Wade Hands has noted, when Savage was writing alone he tended to emphasize the normative interpretation in terms of an ideal agent. By contrast Savage's sometime co-author, Milton Friedman, tended to treat these as a useful (as-if) device for making predictions.** (More recently, as Hands notes, the normative interpretation has predominated.)

At this stage one may well wonder what the previous paragraph has to do with Knightian uncertainty for we seem to have drifted into an interpretation of rational choice theory. In fact, it is crucial: Ellsberg's strategy is to suggest that "the meaning" of true or Knightian uncertainty  "would be that with respect to certain events they did not obey, nor did they wish to obey - even on reflection - Savage's postulates or equivalent rules." In such circumstances "the postulates failed to be acceptable in those circumstances as normative rules, or that they failed to predict reflective choices." (646) Ellsberg adds that he is primarily interested in failures of prediction (and notes that Savage himself is more interested, "no doubt" in their status as "normative rules"). 

That is to say, Ellsberg's intention, or strategy, is to identify Knightian uncertainty with a class of decisions that can be specified precisely as empirical violations of the Savage axioms. Again, on may wonder, why would that count as an instance of Knightian uncertainty? And the answer is: "there would be simply [a] no way to infer meaningful probabilities for those events from their choices, and [b] theories which purported to describe their uncertainty in terms of probabilities would be quite inapplicable in that area." (646; [parentheses added].) This [a-b] is true, as Ellsberg notes, absent "different operations for measuring probability." (646; [emphasis added.])  Here, Knightian uncertainty is associated with well defined choice circumstances in which it is impossible to attribute (with the Savage postulates) subjective probabilities to agents.

There is an instructive irony here. As mentioned above, Ellsberg noted that Arrow was a fierce critic of Rawls. When, later in 1973, (recall) in reviewing Rawls' Theory of Justice in the Journal of Philosophy, Arrow (correctly) discerned Rawls' adherence to Knightian uncertainty, but he misdescribed Knight's position as resting not on the denial of subjective probabilities (in the axiomatic tradition of "Ramsey and by L. J. Savage"), but on the denial of "objective probability." So, from Arrow's later (1973) perspective, Ellsberg can't be seen as defending Knight at all!+  I mention the irony because while the later (1973) Arrow is reductive about Knight, it is true that Knightian uncertainty was not limited to the class of interest to Ellsberg (subjective probabilities).

At this point, I am in the position to explain the relationship between Knightian uncertainty and what Ellsberg called ambiguity. But before I get to that (in a future post, alas), I need to spell out why the irony is instructive. One ground on which Arrow (1951) had criticized Knight is that his "analysis" is "lacking in formal clarity." (416) And in larger context, the implication is that without such formal clarity, Knight's position ought not be taken seriously. In fact,  in 1951 Arrow's hopes that then recent "developments"  in "the formalization of the theory of choice under uncertainty and its relation to many business phenomena" represent "dramatic breaks in continuity and have given hopes of a much clearer understanding of the problem." (405)++ That is to say, the formalization presents "a revolution in though" (to quote Samuelson, who in turn echoes J.N. Keynes anticipating Kuhn)  that is, the "Mathematical-Economics Revolution." 

While framed as a defense of Knight, Ellsberg's contribution is in the spirit of the Arrow-Samuelson hopes for economics. For, in fact, Ellsberg makes the very intelligibility of Knightian uncertainty dependent on a prior formalization (e.g. Savage's postulates). For, Knightian uncertainty can in his hands only be constituted by choice instances where this formulazation, when treated as a means to assign subjective probabilities to thoughtful (and willing to bet) agents,  is empirically falsified or (if one dislikes the Popperianism) inapplicable. For, Knightian uncertainty now just is or is constituted by the very violation of the (particular) formalization. Whatever one thinks of that it's pretty clear this far removed from Knight's (and Keynes's) own ideas about the nature and epistemology of uncertainty even if it clearly is a case of Knightian uncertainty. Obviously, as Ellsberg notes, the violation is itself also a research opportunity to develop other formalizations that may be predictive of such choice situations, or their systematic violations.*** 

 

On Leaving Unpublished Papers on the Bus (Abba Lerner)

In 1932, Lerner received his bachelor's degree from the L.S.E. and published his first paper. The following year, he and a group of colleagues founded The Review of Economic Studies. Impatience with articles long in form and light in content was a prime motivation for the creation of a professional journal whose success has now extended over more than half a century. Also in the early to mid-1930s he played a leading role in organizing a London-Oxford-Cambridge Joint Seminar for younger economists in the three universities--a rare example of collaborative effort among them. By the time he completed his graduate studies in 1934, he was recognized as one of the future leaders of his profession with eight major articles to his credit, and the award of a prestigious Post Graduate Fellowship that permitted him to spend the year 1934-35 in Cambridge and in Manchester. But even more remarkable than his eight publications is a paper written in 1933 and unpublished for 17 years, stating and proving the international factor price equalization theorem. The result, re-discovered in 1948, became one of Nobel Laureate Paul A. Samuelson's most celebrated contributions to international equilibrium theory.

Lerner's first writings showed several of the main characteristics of his prolific output during a period of almost 50 years: originality and lucidity of thought, allied with an exceptional gift for exposition. They also displayed his virtuosity at using simple geometric arguments in economic analysis.--G. Debreu B. Hansen C.J. Hitch

A few days ago, I mentioned Abba Lerner (who is being discovered because of political debates over MMT) in passing, and quietly linked to the quoted obituary. Not unlike his ideological opposite, Gordon Tullock, Lerner is relatively easy to read and the (relative) simplicity of his prose hides profundity. No less an authority than Paul Samuelson (1964) pointed out that 'Papers like those of Lerner's are so packed with results that few readers have ever gleaned all their fruits" (quoted by Landes). 

When I started to write this post I intended to comment on Debreu's (to me surprising) appreciation of Lerner. But I got reminded of the great story around Lerner's unpublished seminar paper. The story is told with more detail by Landes, and I quote him first:

Samuelson's demonstration found its way to the desk of Lionel Robbins, who recalled that he had heard the same argument from a student in seminar some fifteen years earlier; and he still had a copy of that seminar paper, by Abba Lerner. At Robbins's urging, Lerner published the piece as originally written: "Factor Prices and International Trade," in Economica in 1952. The question remains, what had Lerner done with his copy of the paper during all those years?

The story, as told by Scitovsky, is that it had been lost; that Lerner had given the corrected typescript to a fellow student, who had volunteered to type it for submission to a periodical and then left it on a bus. It was never recovered, and Lerner was too busy working on other papers and perhaps too embarrassed by the circumstances to recover the text. At least that was the talk among Lerner's students in 1935, when Scitovsky was one of them.

Landes's account is worth reading not the least because he hints at the genteel British, academic antisemitism that prevented Lerner from obtaining a position. Be that as it may, Robbins was a central player in economics in the 1930s (and I have discussed him (recall) before not only because of his impact on Rawls), and LSE one of the key nodes of the profession. That he was no dummy is shown by the fact that he remembered Lerner's paper fifteen years later when he encountered Samuelson's paper. (I often don't even remember my own papers that long ago!) But it is notable that he seems to have missed its original significance (even if we can speculate that he may have been the one to nudge Lerner to submit the paper "to a periodical.") 

Of course, Robbins fastidiousness in keeping seminar papers also saved the day. As I contemplate the story of the missing paper, I was struck by the fact that the fellow student, the culprit, never gets named. I think he (she?) would make a fine character in a short story, or (recall) histories of walk-in characters in the history of science.

As regular readers know I am fascinated by ways in which purported epistemic peers can miss the significance of a central contribution to the field (recall this episode on Bennett). Samuelson offers a generous footnote to Lerner's (then still unpublished piece) in his famous article, and he clearly suggests that he recognizes its importance (calling it "masterly, definitive treatment of the question, difficulties.") Samuelson was, at the time, redefining economics. Some other time I return to these papers (which connect nicely to my reading of Adam Smith).

I close on a minor key. Landes suggests that even Lerner "himself was not always aware of what he had done." This raises the interesting question to what degree one can fail to discern the significance of one's own contribution.While, of course, it's quite possible one fails to foresee every downstream implication of one's contribution, I am, nevertheless a bit suspicious of this idea; it lets us, lesser lights (who miss stuff all the time), off the hook a bit too easily. I prefer to think Lerner was simply busy tackling the next big problem.

 

 

 

On Understanding Without Mathematics and the Slums of Sociology

I must confess that my own first reaction to the General Theory was not at all like that of Keats on first looking into Chapman's Homer. No silent watcher, I, upon a peak in Darien. My rebellion against its pretensions would have been complete except for an uneasy realization that I did not at all understand what it was about. And I think I am giving away no secrets when I solemnly aver-upon the basis of vivid personal recollection-that no one else in Cambridge, Massachusetts, really knew what it was about for some 12 to 18 months after its publication. Indeed, until the appearance of the mathematical models of Meade, Lange, Hicks, and Harrod there is reason to believe that Keynes himself did not truly understand his own analysis.
Fashion always plays an important role in economic science; new concepts become the mode and then are passé. A cynic might even be tempted to speculate as to whether academic discussion is itself equilibrating: whether assertion, reply, and rejoinder do not represent an oscillating divergent series, in which-to quote Frank Knight's characterization of sociology-"bad talk drives out good."
In this case, gradually and against heavy resistance, the realization grew that the new analysis of effective demand associated with the General Theory was not to prove such a passing fad, that here indeed was part of "the wave of the future.--Paul Samuelson (1946) "Lord Keynes and the General Theory," Econometrica. 187-188.

As I noted yesterday, an invited comment on Backhouse's biography of Samuelson has had me take a second look at Samuelson's biographical sketches and obituaries. It's testimony of Samuelson's confidence and rhetorical abilities that his lack of initial understanding of the General Theory is treated as a problem of the General Theory (and even Keynes). It is notable that he does not consider the obvious alternative suggestion that Cambridge, MA, was a relative intellectual backwater in 1936 (the year the General Theory appeared) and so unfamiliar with the new thinking developing in Cambridge England. (To his credit, in the rest of his essay, Samuelson provides some evidence for the latter half of that claim.)

As an aside, it is a bit peculiar to see a low estimation of sociology attributed to Frank Knight, the man most responsible of generating initial interest in (and translation of) Weber Stateside. One wonders if, perhaps, Samuelson's memory is failing him and that he is importing his own negative characterization of sociology (recall) into his memory of Knight's acerbic wit. My evidence for this suggestion is that when in a different obituary, he discusses Jacob Viner's ferocious use of the Socratic Method (indebted to the Harvard economist Taussig), Samuelson adds that graduate students who did not meet Viner's exacting standards "had no choice but to drop out or to transfer to the slums of political science or sociology." (JPE, 1972: 6) It's not impossible that the low estimation of sociology was more common among economists in Chicago, but we know from Stigler's citation practices that some read sociology and social theory rather seriously, and that it even influenced Milton Friedman's methodology. 

Some other time I'll explore the significance of the proto-cyclical-equilibrium model of scientific fashions, a model that would certainly have some significance (recall) for professional philosophy (where the idea that ideas cycle in and out of fashion is itself a recurring fashion.)* I mention it here because the whole obituary is framed in proto-Kuhnian terms in which Keynes generates a scientific revolution (and in which differential response to the revolution is explained in terms of generational differences.) Later in the piece, Samuelson notes that textbooks break the cycle: "most important from the long-run standpoint, the Keynesian analysis has begun to filter down into the elementary textbooks; and as everybody knows once an idea gets into these, however bad it may be, it becomes practically immortal." (189) Samuelson was just finishing up his mega-influential textbook. (Luckily, in philosophy textbooks are not the dominant mode of instruction yet.)

Okay, let me get to the main point. Samuelson claims here that mathematics is the language in which by way of a model one understands an analysis. (The previous sentence is compatible with the further thought -- pressed by Samuelson's ironic critic -- that mathematics may well be many languages.) This is true not just of the readers of the General Theory, but also its author. Samuelson emphasizes the point later: "In it the Keynesian system stands out indistinctly, as if the author were hardly aware of its existence or cognizant of its properties."** Now, to be sure, there are two important truths lurking in Samuelson's position: first, that the meaning of a text may well escape or go beyond an author (and sometimes even may be so intended by an author)--I made that same point when discussing the debate between Plantinga and Hazony over biblical meaning. Second, sometimes, maybe often, an analysis in non-mathematical language is fuzzy or unclear or equivocal in ways that are only made transparent by a mathematical model. (A claim Samuelson would repeat regularly later in his rejection of verbal economics as opposed to mathematical economics.)*** Only later in life (1972), when discussing Viner's significance (he calls him both the "greatest neoclassical economist" and a "great eclectic"), does Samuelson relent on the point: "Jacob Viner was a respecter of mathematics, but also both critical and defensive about it. Let me make clear that Viner possessed in superlative degree what might be called native mathematical ability....But I now realize in retrospect that the subject of economics gained from having Viner concentrate upon those areas of wisdom and erudition for which he had a unique comparative advantage, and that more mathematical facility might merely have diverted him from his appointed task."

Samuelson does not consider an alternative interpretation: that in different ways,  Meade, Lange, Hicks, and Harrod may have offered models inspired by the General Theory, but  in their very formulation changed the meaning of the 'Keynesian' analysis.+ One can recognize the previous point while allowing that the new models may have had all kinds of uses (teaching, policy, transferring knowledge, etc.) made difficult by the General Theory. To argue that case is not my present charge (and I would have to re-familiarize with all the relevant models), although I have already suggested that Keynes's insights about the nature of true uncertainty were lost in the way his views got formalized. (I made some such point in a different context when discussing Carnapian explication.) 

Strikingly enough, and Samuelson often buries his most important points in footnotes, he adds the following observation:

8 Indeed only in connection with Frank P. Ramsey's "A Mathematical Theory of Saving"...does he show interest in an esoteric theoretical problem; there he gave a rather intricate interpretation in words of a calculus-of-variations differential-equation condition of equilibrium. His reasoning is all the more brilliant -- and I say this seriously! -- because it is mathematically unrigorous, if not wrong. The importance which Keynes attached to this article is actually exaggerated and can be accounted for only in terms of his paternal feeling toward Ramsey, and his own participation in the solution of the problem. (196)

An uncharitable reading of Samuelson may suggests that he is committed to the idea that wrong mathematical reasoning is better than no mathematical reasoning (even if not wrong). A more charitable reading would suggest that he recognizes that sometimes insight does trump a wrong mathematical formulation, especially -- and this is not meant as criticism -- if it takes a Samuelson to discern the kernel of insight.

 

On The Sociology and Philosophy of Science in and by Economists

Just prior to Hayek's departure from post World War II mainstream economics came what must be hailed as his greatest important contribution to economic science. It can be well understood if I make reference to the famous debate between Lerner–Lange and Ludwig von Mises (1935) over the role of the supply-and-demand mechanism in a socialist state. Lerner (1934), as well as Lange and Taylor (1938) quasi-independently, suggested that playing the game of parametric supply–demand auctioning could optimally organize a socialist society that had evolved beyond historic capitalism.

Arguably this general notion might be traced back to Adam Smith's legendary Invisible Hand, which led society unconsciously to achieve the maximal “general good.” Individual avarice, under market checks and balances, achieved this happy state. A more sophisticated version of the same idea came in the 1890s from Pareto (1896–97) and Barone (1908), long before Arrow-Debreu breakthroughs. Pareto deduced the mathematical theorem that the determinative equations of Walrasian general equilibrium mimicked exactly the maximizing welfare conditions for utopias.

By contrast, Mises in his polemics prior to Lerner–Lange, had contended that only under actual capitalism could one even define a post-Bentham welfare economics. Autobiographically, I can testify that most economists born after 1910 at that time would have voted Lerner and Lange to be the debate winner, with Mises as the prime loser. (Even my Harvard mentor Schumpeter saw some merit in the Lerner–Lange conjectures.¹)

In the 1940s Friedrich Hayek in an invited Harvard lecture introduced a new dynamic element into the debate. Call it “information economics.” The broad competitive markets, Hayek proclaimed, were the recipients of heterogeneous idiosyncratic bits of individuals’ information. Playing for matches rather than for real money or blood was as different an economic dynamics as night is from day.

I was not at all the only one to be converted to the view that, as between Abba Lerner, Oskar Lange and Ludwig von mises, Friedrich Hayek was actually the debate's winner. (After the U.S. State Department persuaded Lange to go back to Stalinesque Poland, Lange reportedly lost his lust for auction markets.)

The jury of history judges innovators not by adding linearly their plus and minus contributions. Hayek's 1974 Stockholm Nobel Prize was importantly won for him by his notions about decentralized information economics discussed that day in Cambridge, Massachusetts.

Never mind that Hayek over-praised the optimality of individualistic spontaneity. Charles Darwin's genius long earlier had eclectically enumerated both the plusesand minuses of individualistic natural selection.

I do not know how much George Stigler had ever been influenced by Hayek when later Stigler's work on information economics helped bring him his Nobel medal. Senior Robert K. Merton, as sociologist, historian and philosopher of history of science, taught us again and again that great things come in pairs and triplets. Darwin had his Wallace. Newton had his Leibniz. Leibniz had his Newton. Thomas Kuhn documented the case that the fundamental Law of Conservation of Energy had a dozen different fathers. Although what each had discovered was not precisely the same thing, maybe at most one of the dozen did understand all the nuances.--Paul Samuelson (2009) "A few remembrances of Friedrich von Hayek (1899–1992),"  Journal of Economic Behavior & Organization.

Two long-running themes of my blogs on the philosophy and history of twentieth century economics, are (a) that ideas from the philosophy of science played a big role in cutting edge discussions among leading economists, and (b) that some ideas we associate with philosophy of science were developed or articulated within economics. On (b) I have primarily focused on the role of Kuhnian ideas within economics (between 1870-1960) [for an overview see here]. One reason to mention Kuhn is to note the otherwise peculiar fact the leading and influential ,professional economists of the age (Samuelson, Stigler, Buchanan, -- all Nobel laureates --) were serious and leading historians of economics, while simultaneously arguing for and writing textbooks with a conception of a professional economist that left little relatively room for the history of economics inside the discipline. 

Because, yesterday, I was asked to comment on a précis of Roger Backhouse's first part of his biography of Paul Samuelson, the aptly titled, Founder of Modern Economics: Paul A. Samuelson, I returned to some of Samuelson's many biographical sketches of others. He excelled in the genre, in which he mixed personal memory, character sketches, and a kind of summing up of theoretical significance. In one of his earliest contributions to genre, his (1946) obituary of Keynes, he pretends as if the significance of a biographical sketch is merely short term: "The personal characteristics of the scientist can only be captured while memories are still fresh; and only then, in all honesty, are they of maximum interest and relevance." Yet, he closes the 1946 obituary with a footnote (#15) in which he writes, " should like at this point to pass a clue on to the future historian of economic
thought." What follows is a rather clever suggestion of the influence by Keynes on Joan Robinson 1933--the effect of which is to diminish the originality of Robinson and, thereby (because Samuelson is a canny operator) to diminish her would be future influence. Because Keynes is dead, he can't set the record straight on her behalf (if he would have been so inclined). So, in stroke he has undercut one of the sharpest operators of his time.  Even if you don't agree with my interpretation of the footnote, the wording of the footnote shows that is also playing a long game in the service of posthumous fame and score setting.

Samuelson exhibits here the marks of a Kuhnian legislator, who can operate at multiple dimensions, short term and long term, but also bring together different kinds of concerns (recall this post on Samuelson's biographical sketch of Viner). This ability to play chess on multiple boards at once is characteristic of Samuelson's command of the discipline even at a young age. (He  was 31 in 1946.) While Samuelson pioneered many techniques, his greatest skill was, in my opinion, to write the paper that would help the rest of the economics discipline understand what the issues were on any topic. He did this time and again, and his citation score is monstrously large.   

As an aside, Samuelson's biography of Keynes is full of gems, but the most revealing about Samuelson is this one:  Keynes, who became a celebrity outside academia with the Economic Consequences of the Peace, "met the practical men of affairs on their own ground and won the reputation of being an economist who knew how to make money." Samuelson would become a celebrity and wealthy with his textbook and trading success.

Okay, let me now turn to the final paragraph I quoted above from the Hayek biography. If we ignore the interpretation of Adam Smith (and the amusing and not wholly false proposal that Smith is the founder of Socialist Utopias as opposed to the Stalinist kind),* the comment on the context and significance of Hayek's greatest contribution to economics is judicious. But it is a bit surprising to see Samuelson take yet one more pot-shot at George Stigler (who had died in 1991). Now, you need to know that Samuelson and Stigler knew each other from the The University of Chicago of the mid 1930s, where Samuelson was a precocious undergraduate and Stigler one of the leading graduate students. They were both greatly influenced by Frank Knight and Jacob Viner. But Samuelson developed into the leading 'centrist' (his own words in the biography of Hayek) technocrat, whereas Stigler became one of the leading lights of the Chicago school. (As Samuelson makes clear Hayek pretty much left professional economics after 1945.) I have repeatedly explored their debate that originated in the status of welfare economics (see here, and follow the links back) in 1943.

But Samuelson does not merely suggests that Stigler won the Nobel for not quite original, cutting edge work. He also introduces the great sociologist of science Robert K. Merton to reinforce his point. Now, Merton had been a colleague of Stigler's at  Columbia and (together with Talcott Parsons) a great influence on Stigler's conception of science (recall also this post.) Stigler loved to quote Merton in his methodological papers, and there is no doubt that when Stigler wrote Kuhn just after Structure appeared to inform Kuhn that Kuhnian ideas were developed by economists like himself, they had drawn on Mertonian insights. But the plot thickens (as Backhouse gently reminded me yesterday) because Merton was also the father of the economist Robert Merton (and another Nobel laureate which he won for his contribution to the famous option price formula named after Black and Scholes). Merton and Samuelson wrote an important and widely cited text  from the "perspective of a model in which agents can revise their decisions continuously in time." 

It's quite clear that Stigler, who was something of an attack dog, is being treated as the lesser light and being likened to Wallace (and that Hayek is more akin to Darwin). And then for good measure, the reader is reminded that there are good odds that neither Stigler nor Hayek truly understood what they had contributed: there can be only one who understands all the nuances, and that's Samuelson.

 

A Theorist (Arrow) Does History as a Moral Enterprise, and Therapy

Like Schumpeter, Marshall saw himself in a very superior position in the whole world of economics, and even towards his hero, Ricardo, there is more than a touch of condescension. Ricardo is given to an excessive love of abstraction, no doubt, says Marshall, the result of Ricardo's "Semitic" heritage. great biological developments of the nineteenth century had their dark side in the use of science to justify racism, and this example is far from the only one in Marshall.) (3)

...

Keynes did not confuse an antiquarian interest in seeing Sraffa produce a good edition of Ricardo with any excessive respect for an obstacle to what he saw as correct thinking. His understanding of past economists was primarily dictated by their consistency with his current thought. (6)

...

It would be too far from the aim of this essay to examine whether or to what extent the criticism of Ricardo by his successors was motivated, consciously or unconsciously, by the fear of giving aid to the enemies of capitalism. Like any historical inquiry, it would have to be conterfactual, and it is not very clear what would count as relevant evidence.

Instead let me make a few remarks about the fundamental character of Ricardo's system, as I see it. I am a practicing theorist, not a scholar in the history of economic thought, and my reactions are no doubt influenced by my own views. Indeed, it is hard to write intellectual theory and, for that matter, any kind of history, without framing the past through the perspective of the present. It can justly be remarked about history that it is as revealing about the time when it was written as about the time which is its ostensible subject matter. Nevertheless, it is morally incumbent on us to try as far as possible to put ourselves in a position contemporary with that of our author. (8) K. Arrow , "Ricardo's Work as Viewed by Later Economists,"

The great theorist, Arrow (recall yesterday and last week, and here), treats the writing of history as, in part, a moral exercise. He does not explain why he thinks this, but it's clear that he believes that what economics is about is, in part, not just focused on ideas or theories, but also the evaluation of authors. Throughout the essay, Arrow shows an interest in authors' (and their critics') motives, which are linked up to their political, ideological, and even racist commitments. Even in the quoted passage above, where Arrow self-consciously does not explore the motives of the critics of Ricardo, he makes a point of mentioning them anyway. But the core historical method he embraces is that qua historian, we have to "try as far as possible to put ourselves in a position contemporary with that of our author." Note that Arrow is not claiming that we have to put ourselves in the shoes of the author, but rather we have to take up a kind of counterfactual position that makes us a kind of contemporaneous observer when we evaluate the quality of an author's thought. But in so doing we bring along, as it were, our knowledge.

Arrow, in  fact, exhibits this methodological stance throughout the essay. He is very careful to avoid Whiggish criticism (and criticizes others for doing so), but he always takes up two perspectives while writing the past: he shows the strengths and limitations of an author's thought both (i) from the hypothetical then contemporary perspective (noting what could have been criticized and appreciated with the technical tools at hand) as well as (ii) from the present perspective in which the implications of some tools are better known or new concepts have been introduced to make theoretical relations more  transparent.*

As an aside, Arrow is frank about the fact that the counterfactual that goes into (i) is really itself a kind of art: it is, after all, (a) "not very clear what would count as relevant evidence." He does not note another problem with his stance toward (i); it is not entirely clear (b) what counts as contemporary -- how long is the present? -- especially, if there is not a historical agent that can be connected to the perspective. It is worth noting that the complications involving (b) especially have been explored by critics of Quentin Skinner in recent (!) discussions about the methodology of the the history of philosophy (see, e.g., Laerke and my observations on Koen Vermeir).

Arrow recognizes that (ii) runs the danger of generating a superior position that is to be avoided. He does not explain how this is done, and he recognizes, remarkably (recall also my post on Marshall's criticism of Ricardo), that science itself can be a source of -- let's say -- unjustified or unearned feeling of elevation. (It's allied to expert-overconfidence, and mistaken self-understand as magnanimous but not the same to each.) Presumably by engaging in the practice of (i), one can learn to avoid the hubris associated with (ii) or (iii) the kind of sectarian yet Whiggish interest in the present that Arrow associates with Keynes's treatment of the past (see the quote above).

Often, when one reads the other two great historians of economics who also were Nobel-laureates, Samuelson and Stigler, one gets the sense that they recognize that maintaining control over history matters (in ways Kuhn has described) for the identity of the present paradigm. (They were both intimately familiar with Kuhnian ideas before Kuhn wrote Structure [see here and here])** It's not impossible that Arrow also thought this. But I wish to entertain another speculation.

Strikingly, Arrow does not treat being a theorist in such moral terms. Yesterday, I noted that Arrow has a tendency to treat theorizing, in part, as a form of intellectual combat in which opposing views are destroyed. (That's perfectly compatible with him being a generous and kind person in all kinds of ways.) One may speculate (and Arrow explicitly recognizes the legitimacy of such speculation) that for Arrow writing and teaching history of thought was, in part, a kind of intellectual therapy to guard against his own intellectual vices. (Recall also my exchange with Susan James.) As he himself noted the historian's craft can also be quite revealing "about the time when it was written" as well as its author.

 

When 'Theologians' Criticize 'Mathematical Economists'

Economists who rationalise their discipline’s value can be convincing, especially with prestige and mathiness on their side. But there’s no reason to keep believing them. The pejorative verb ‘rationalise’ itself warns of mathiness, reminding us that we often deceive each other by making prior convictions, biases and ideological positions look ‘rational’, a word that confuses truth with mathematical reasoning. To be rational is, simply, to think in ratios, like the ratios that govern the geometry of the stars. Yet when mathematical theory is the ultimate arbiter of truth, it becomes difficult to see the difference between science and pseudoscience. The result is people like the judge in Evangeline Adams’s trial, or the Son of Heaven in ancient China, who trust the mathematical exactitude of theories without considering their performance – that is, who confuse math with science, rationality with reality.

There is no longer any excuse for making the same mistake with economic theory. For more than a century, the public has been warned, and the way forward is clear. It’s time to stop wasting our money and recognise the high priests for what they really are: gifted social scientists who excel at producing mathematical explanations of economies, but who fail, like astrologers before them, at prophecy.--by Alan Jay Levinovitz  "The New Astrology" @Aeon.

Levinovitz has a PhD from the Divinity school at Chicago. This is why I'll call him a 'theologian' in what follows. (In the piece he calls himself "a scholar of Chinese religion.") That will help distinguish what he does from what 'philosophers of economics' do, and also call attention to the significance of labels and labeling. In his Aeon piece, Levinovitz refers smoothly to 'economists' without distinguishing the many varieties of economists and economics; he talks of 'mathematical theory,' 'mathiness,' and 'mathematical reasoning' without distinguishing the many different kinds of mathematical theories and uses of mathematics in the varieties of economists and economics; and he talks of 'performance' without bothering to explore the particular ends that different kinds of economists set for their particular theories and models. And he conflates different kinds of non-performance: for example, within a single paragraph, he moves from (a) failed predictions of interest rate movements, (b) to failures to foresee economic crises, to (c) a purported failure of not succeeding at -- pace the confident claim of "the Nobel Laureate Robert E Lucas Jr" -- 'depression prevention.' What's especially odd about this list is that a depression was prevented (Stateside!) by the actions of former Fed Reserve Ben Bernanke (who was the leading expert on the great depression and who followed to a considerable degree the policy relevant morals of pre-existing research.) I return to the failures of (a-b) shortly--these are both failures of "prophecy," they need not involve failures of explanation or understanding (or abuses of mathematics).

Without mentioning it nor irony (nor historical self-consciousness), Levinovitz re-activates a familiar Meme: the hyper-mathematization of economics (recall this piece in the New York Times by Tyler Curtain and Alex Rosenberg; also recall my response). The modern version of the Meme goes back to Boulding's response to Samuelson Foundations [recall my treatment]--the book that self-consciously tried to generate a mathematical revolution in economics in the 1940s. (No, I am not claiming Samuelson invented mathematical economics as such, but he did develop the modern edifice and the disciplinary self-understanding that accompanied it.) I mention this, rather, to point out that when earlier generations of economists debated the question in public they were, in fact, very interesting on the issue. But by now the Meme gets recycled without distinctions that may make the conversation illuminating.

Much of the piece is about the abuse(s) of financial economics. But we get no analysis of the different uses and kinds of mathematics in it: there is a huge difference among (d) so-called, ‘Technical analysts at big banks...trying to find patterns," in stock-market movements, which is thoroughly discredited by professional economics (already since the 1960s), and, say, (e) portfolio allocation models, (f) rational pricing techniques (like Black-Scholes), and (g) bankers' risk-models (even though some of the same underlying principles are used in e-g). The character of the mathematics and the models used in (e-g) is, in turn, very different from the models and theories used in (a-b). And the reasons for their failure are different in kind from the failure of risk-models.

For example, I have studied the failure to forecast the economic crisis of 2009 by the Dutch planning agency. And the explanation for it is fairly simple: they did not (and perhaps could not) foresee the collapse in world trade (as a consequence of a liquidity crisis post Lehman)-that's no trivial matter in an economy in which the variance in growth is extremely dependent on trade volumes. It took the planning agency six months to catch up with reality. To solve this problem, they do not need to abolish the use of mathematics, but they need to get much more creative in having access to  relevant trade-data in real time. (I am not suggesting there will not be other problems--I am a big defender of the significance of uncertainty, after all.)

This is not say that Levinovitz's piece is all rubbish. We learn quite a bit about the "the enchanting force of mathematics," especially, its role in facilitating the huge social investment in "li production in ancient China" that is, "the science of calendrics" (or astrology/astronomy). But Levinovitz's underlying point that 'mathematics' is excessive status enhancing is a familiar one. For, as I have noted, Mandeville already made the point about the social, non-epistemic role of mathematics in eighteenth century medicine (Mandeville was an insider, a trained and practicing physician): "The reason, therefore, why the mathematics are so highly recommended to all young students in general, is not so much the utility they are of in their studies, and to understand the business they are to follow, as that they are a modish science, the knowledge of which thought to be a fine accomplishment." In particular, "to ingratiate themselves with the Publick; and that they hope from it to be sooner trusted with sick People, than they would be, if it was known that thy had never applied themselves to that science." That is, the utility of math in eighteenth century medicine is a signaling device that makes mathematical medical doctors more attractive in the market place. (There are some fantastic observations about this in Mandeville's piece.) Levinovitz's piece is, in fact, framed with a series of complaints  ("wasting our money") about the high value(s)/incomes of economists in various market places. (Again, he conflates these.)

Mandeville also anticipates Levinovitz's point that the use of mathematics (now quoting Levinovitz) "creates a high barrier to entry for those who want to participate in the professional dialogue." More recently, Sandra Peart and David Levy, two creative economists that often fuel my ideas about these matters, have investigated the ways in which economics and finance are represented as alchemy and subtly rely on selling themselves as alchemy (see here, and pay attention to the cartoons).

But it is by no means obvious why the use of mathematics "makes checking someone’s work excessively laborious." The problem here is the economists' history of lack of norms on sharing data (and other forms of transparency) and, more general, lack of incentives to check each other's results and publish dis-confirmations (this may be changing).  It is certainly not obvious why the use of mathematics (an abstract, non empirical tool) would imbue "economic theory with unearned empirical authority." (I leave aside that at one point in the piece the evils of measurement and mathematics are conflated.)

In conclusion, one may be tempted to say that I have missed Levinovitz's point. He claims that that economists have become modern high priests, which because they do so bad at predicting future events,"fail at prophecy." Surely, I cannot object to his position? But I do because it also misunderstands the nature of prophecy. Prophecy is not prediction (recall this post). Here's an argument from authority: as Hobbes notes, the Hebrew Bible recognizes false prophets are also capable of accurate prediction--Balaam is the exemplar in this category. The previous sentence is a partial joke, of  course. The more important point is that social prophecy is only tangentially related to prediction. The sooner we understand this, the more sophisticated our conversation about the possible roles of reflexive social science in our societies can be. 

 

Mathematical Economics > Sociology

Those concerned with general problems of philosophy of science and its methodology may find modern economics of considerable interest....Economics is by its nature a softer and less exact science than, say, conventional physics. Now in a hard, exact science a practitioner does not really have to know much about methodology. Indeed, even if he is definitely a misguided methodologist, the subject itself has a self-cleaning property which renders harmless his aberrations. By contrast, a scholar in economics who is fundamentally confused concerning the relationship of definition, tautology, logical implication, empirical hypothesis, and factual refutation may spend a lifetime shadow-boxing with reality. In a sense, therefore, in order to earn his daily bread as a fruitful contributor to knowledge, the practitioner of an intermediately hard science like economics must come to terms with methodological problems. I stress the importance of intermediate hardness because when one descends lower still, say to certain areas of sociology that are almost completely without substantive content, it may not matter much one way or the other what truths or errors about scientific method are involved—for the reason that nothing matters.”--Paul Samuelson (1964) (new) Foreword to Foundations of Economic Analysis, ix

We philosophers are known to look down (mistakenly) on English literature professors (you can count on Alex Rosenberg to express what others think), so I am going to be restrained in what follows. Recent sociological work has explored the sense of superiority of economists.* Even so, I was unaware that Samuelson had expressed his contempt for (bits of) sociology in the paradigm-setting text of mathematical economics. (Serves me right for only looking at the first, 1947 edition.)

Later in Foundations, Samuelson mentions (without comment) that "many economists, well within the academic fold, would separate economics from sociology upon the basis of rational [homo economicus] or irrational behavior, where terms are defined in the penumbra of utility theory," (91; introducing Chapter V 'the pure theory of consumer's behavior.') While the study of irrational behavior may be significant, it does not have high status (then and now).

One might think that the Samuelson's put-down of (bits of) sociology is evidence of a kind of professional rivalry on what discipline gets to be the pre-eminent policy science. Now, it's true that folk like Parsons were promoting sociology and systems theory as the most general social (and even management) science, but by the mid sixties the context had already been decided. Economics was the paradigmatic social science. (In fact, Samuelson's forward is very triumphant: "serious economics has become mathematical and technical" (xii), which produced a "renaissance in economic theory" (xii) while coming close to comparing himself to Newton (xi). Don't trust me; here is Thomas Kuhn's judgment in Structure (1960):

“To a very great extent the ‘term’ science is reserved for fields that do progress in obvious ways. Nowhere does this show more clearly than in the recurrent debates about where one or another of the contemporary social sciences is really science….they will cease to be source of concern not when a definition is found, when the groups that now doubt their own status achieve consensus about their past and present accomplishments. It may, for example, be significant that economists argue less about whether their field is a science than do practitioners of some other fields of social science. (160-1)

So why is Samuelson dissing sociology? And, moreover, why do so in context of stressing that even the practitioner of economics (and not just the philosopher of science) should be concerned with methodology of economics?

As it happens in 1952 Samuelson addressed himself explicitly to methodology and philosophy of science (those were the days!) in the pages of the American Economic Review, happily reporting that "mathematical economics is flying high" (56).** Along the way he remarks, "I find Max Weber or Talcott Parsons difficult to understand in any  tongue." (62) There is little evidence, I think, that Samuelson was much interested in either Weber or Parsons (although I would be surprised if he never bumped into Parsons while writing his dissertation at Harvard).  Neither Weber nor Parsons is mentioned in the Foundations.

Even so, Samuelson's (1952) remark is a helpful clue. In the period, the Chicago economist, Frank Knight, was the great advocate of Weber, while his student, George Stigler, was the great advocate of Parsons (himself an important Weber scholar). In fact, Stigler had a tendency to introduce Parsons in the context of his own methodological musings (in his textbook and in his high profile, 1948 LSE lectures) that, in turn, set the stage of Friedman's still famous methodological reflections (I have traced some of the details here; this is part of a larger story about debates over economic imperialism and general sociology of knowledgein the 1930s). One such instance was his blistering attack on Samuelson and the so-called new welfare economics in the American Economic Review; Samuelson responded in kind (recall here and here for details on the debate between the two future Nobel laureates).

And, in fact, Samuelson's only mention of Stigler in Foundations is near the very end of his long treatment (and history) of welfare economics (chapter viii), where he reminds his reader of the debate: "Whether Kaldor and Hicks are open to the criticism along the lines which Stigler has recently advanced, the reader must decide." (252) As is well known, Samuelson's readers, the next generation of the economics profession, decided to agree with him (but see here and here).

So, the moral of my story is that sociology got dissed in the front pages of the most influential work of professional economics of the twentieth century because important rival economists that had to be discredited*** were appealing to sociological insights in criticizing central achievements of the new mathematical economics. These Samuelson understands as "internal problems of economic research" (viii), that is, immune from external criticism. If I am right about this, then there is a further historical irony lurking here. As I have recounted Stigler appealed, while drawing on Parsons and Merton, to that very internal/external distinction to let Thomas Kuhn know in a series of letters that economists (like Samuelson and himself) had anticipated most of Kuhn's philosophy of science because they had been engaged with the sociology of knowledge and methodology for much of the previous generation(s).

Containing Risk (toward Modal Economics with Samuelson)

Thinkers have naturally questioned whether the phenomena of uncertainty can be usefully handled by the quasi-mathematical notions of `probability.' Certain subsets of uncertainty those dealing with risks, gambling, insurance, repetitive inventory and quality control of production, and even with tactics of repeated investing are thought to lend themselves better to useful employment of probability procedures.--PA Samuelson Foundations of Economic Analysis, (1983) enlarged edition [pp. 503-504].

'anti-mathematicism' to characterize those thinkers with reservations about the high prestige of applications of mathematical techniques - See more at: http://digressionsnimpressions.typepad.com/digressionsimpressions/2014/12/three-cheers-for-anachronism.html#sthash.aZfF3H8A.dpuf

By anti-mathematicism I characterize expressed reservations about the high prestige, utility, and (either/or) epistemic authority of applications of mathematical techniques in (some areas of) philosophy and the sciences. The idea presupposes a distinction between pure and applied mathematics that I will not question for present purposes. Here's a canonical statement of the idea (from Hume): "in all demonstrative sciences the rules are certain and infallible; but when we apply them, our fallible and uncertain faculties are very apt to depart from them, and fall into error." (Treatise 1.4.1.1)

The first edition (1947) of Samuelson's Foundations self-consciously ushered in the formal revolution in economics. In it, he assumed "a world involving no transaction friction and no uncertainty.” (123.) This helped facilitate what I call a whole-sale displacement strategy in which (epistemic and metaphysical) uncertainty just is treated as measurable risk within economics. This strategy simply denied the validity of a distinction widely embraced by an older generation of economists (including Knight and Keynes,) between unmeasurable uncertainty and measurable risk. (As I noted, Arrow did much of the heavy-lifting against the distinction, but the strategy does not originate with Arrow.) 

The passage quoted above from the appendix to the enlarged edition of Samuelson's Foundations [HT MA Khan] is more measured, even ironic (it's ironic because Samuelson had treated gambling and repeat investment jointly, see here). In it Samuelson deploys what one might call a containment strategy in which the successful application of mathematical technique is restricted only to some (limited) domain (that is, "gambling, insurance, repetitive inventory and quality control of production, and even with tactics of repeated investing"); it does not include the whole of economic life. Moreover, Samuelson (who is a very careful writer), treats the nature and scope of this containment strategy itself not as a settled fact, but as a matter of dispute or, to be more precise, -- Samuelson knew his Quine -- opaque context ("are thought").

That is to say, Samuelson recognizes  that the deployment of probability procedures in models of a sub-set of reality ("gambling, insurance, repetitive inventory and quality control of production, and even with tactics of repeated investing") should be treated with caution. (One wonders how Samuelson, who died in 2009, responded to the crisis of 2008 in which probabilistic risk-models fared badly.) One is not permitted to treat the modal universe of these models as identical to those of wider economic reality.

Of course, Samuelson's containment strategy does not rule out the application of other formal techniques in wide domains of economic life beyond "gambling, insurance, repetitive inventory and quality control of production, and... tactics of repeated investing." So, the passage should not be read as a limitation on the formal revolution. But it is an acknowledgment that reliably connecting decision-rule-generating-mathematical-economics to bits of economic reality is harder than he may have believed when he was a young revolutionary.