How Uncertain is the PK School
The theme of the conference
Where do we go from here?
Great Leap Forward
The PK School is very
What is the PK – School ?
Where is the PK - School ?
What is to do?
First we have to step
backward, before we
can make the big
Chapter 12: The State of
Long term expectations are decisive for
Long term expectations are determined by
The role of knowledge has an influence to the
“state of confidence”
The “state of confidence“ rules these factors.
The “state of confidence“ is also influenced by
Conclusions of Chapter 12
Uncertainty plays a major role for investments.
A lack of confidence leads to lower
investments, less effective demand and higher
The “state of confidence” has a higher impact
on investments than monetary policy.
Chapter 18: The General Theory of
Skill and quantity of available labor.
Existing quality and quantity of available
Degree of competition.
Tastes and habits of the consumer.
Factors that determine the distribution of
These factors are not constant but Keynes
considers that these factors are not changing
over a period.
The propensity to consume.
The schedule of the marginal efficiency of
The rate of interest.
Volume of employment.
The national income.
The given factors influence the independent
variables but do not completely determine
The schedule of the marginal efficiency of
capital is determined by the given factors, partly
of the prospective yield of capital-assets of
different kinds, whilst the rate of interest
depends partly on the state of liquidity
preference and partly by the quantity of money
measured in wage-units. (GT p. 157)
Independent variables are consisting of three
1. The psychological propensity to consume.
2. The psychological attitude to liquidity.
3. The psychological expectation of future yield
from capital assets.
“ ...the physical conditions of supply in the
capital goods industry, the state of confidence
concerning the prospective yield, the
psychological attitude to liquidity and the
quantity of money … determine between them
the rate of new investment.“ (GT p. 157)
Conclusion of chapter 18
New investments are highly influenced by
psychological factors in an uncertain world,
namely determined by the “state of confidence“.
The relation between the „Treatise
on Probability“ (TP) and the „The
General Theory“ (GT)
- The TP was submitted in 1907/08 and published
- The GT was published in 1936.
- There is a strong belief in the PK school there
would be a deep link between the GT and the
Objective and subjective probability
- One fraction of the PK school (Continuists)
assumes that Keynes developed an objective
theory in the TP and let in unchanged until the
publication of the GT.
- The other fraction (Discontinuists) assumes that
Keynes first developed an objective theory of
probability and later changed to a subjective
theory due to the objections by Ramsey.
- Both fractions assume that the definitions of risk
and uncertainty are similar by Keynes and
- According to Keynes and Knight risk is defined
as a quantifiable risk and uncertainty as a non-quantifiable
- So, according to Ramsey, non-quantifiable risks
can be quantified by betting quotes.
- Both fractions do not consider the decisive
question that there is a difference between
Knight's and Keynes's definition of uncertainty.
- According to Knight uncertainty can be
quantified by computational methods.
- According to Keynes uncertainty can never be
reduced to a quantifiable risk.
Missing the point of Keynes
- The whole discussion in the PK School is a
shadow boxing based on the hypothetical
assumption that there would be a connection
between the TP an the GT.
- The discussion misses the point that Keynes
outlined uncertainty as a non-quantifiable risk
which cannot be quantified by any methods.
- The discussion misses also the point that any
statistical data from a time series of the past has
no meaning for future events.
- The whole discussion is symptomatic for the
current PK School.
- Theoretical discussions which have no meaning
for Keynes at all and no meaning for the
economic world of today.
Steeve Keen: Uncertainty in Chaos
- In Chaos Theory the future cannot be predicted
due to high complexity
- Chaos Theory is an epistemological in-determinism
in contrast to an ontological in-determinism
Hyman P. Minsky: Bounded
- Bounded Rationality is also linked to an
epistemological in-determinism in contrast to
an ontological in-determinism
Paul Davidson: Non-ergodicity
- Non-ergodicity is linked to an ontological in-determinism
Keynes's criticism on Tinbergen
- Tinbergen uses multiple linear correlations
without explanations for an economic model.
- The economic environment is not homogenous
over a period of time.
- A set of empirical statistical data of the past has
no meaning for statistical outcomes for the
Without ontological uncertainty
liquidity preference, the non-neutrality
of money and the whole
investment process according chapter
18 of the GT cannot be explained!